DOCSLIB.ORG

All Information Provided Below Comes from the IRS's Cost Segregation

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
All Information Provided Below Comes from the IRS's Cost Segregation All information provided below comes from the IRS’s Cost Segregation Audit Techniques Guide, which can be found at the following address: http://www.irs.gov/businesses/article/0,,id=134180,00.html PLEASE NOTE: Audit Technique Guides are not to be taken as law or as the authoritative definition of a given topic. However, as their names suggest, they are guidance for IRS examiners in the case of an audit or other scrutiny. As such, they can provide great insight for tax professionals as to how best to go about conducting tax studies and preparing reports. www.costsegs.com • [email protected] • 877-633-9840 CHAPTER 1 -INTRODUCTION .................................................................................................................... 5 PURPOSE OF THE COST SEGREGATION AUDIT TECHNIQUES GUIDE ............................................................ 5 BACKGROUND ......................................................................................................................................................... 5 SUMMARY AND CONCLUSIONS ............................................................................................................................ 6 CHAPTER 2 - LEGAL FRAMEWORK .......................................................................................................... 7 OVERVIEW ............................................................................................................................................................... 7 BULLETIN F .............................................................................................................................................................. 7 COMPONENT DEPRECIATION ............................................................................................................................... 7 ASSET DEPRECIATION RANGE (ADR) .................................................................................................................. 8 ACCELERATED COST RECOVERY SYSTEM (ACRS) ........................................................................................... 8 MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS) ..................................................................... 8 EXPENSING PROVISIONS AND BONUS DEPRECIATION - IRC §§ 168, 179, AND 1400L .................................. 9 WHAT IS TANGIBLE PERSONAL PROPERTY? ...................................................................................................... 9 INVESTMENT TAX CREDIT - IRC § 48 .................................................................................................................... 9 TANGIBLE PERSONAL PROPERTY ..................................................................................................................... 10 BUILDINGS AND STRUCTURAL COMPONENTS ................................................................................................. 10 SECTION 1245 AND SECTION 1250 PROPERTY ................................................................................................ 11 FUNCTIONAL USE TEST ....................................................................................................................................... 12 INHERENT PERMANENCY TEST AND THE "WHITECO FACTORS"................................................................... 12 REPEAL OF ITC AND COMPONENT DEPRECIATION ......................................................................................... 13 HOSPITAL CORPORATION OF AMERICA v. COMMISSIONER ("HCA") (1997) .................................................. 13 ACTION ON DECISION .......................................................................................................................................... 14 CHIEF COUNSEL GUIDANCE ............................................................................................................................... 14 LACK OF BRIGHT-LINE TESTS FOR DISTINGUISHING § 1245 AND § 1250 PROPERTY ................................. 14 SUMMARY AND CONCLUSIONS .......................................................................................................................... 15 CHAPTER 3 - COST SEGREGATION METHODOLOGIES ...................................................................... 16 INTRODUCTION ..................................................................................................................................................... 16 WHAT ARE THE MOST COMMON METHODOLOGIES UTILIZED FOR COST SEGREGATION STUDIES? ...... 16 WHAT ARE THE ATTRIBUTES OF VARIOUS COST SEGREGATION METHODOLOGIES? .............................. 16 WHAT METHODOLOGY IS REQUIRED BY THE IRS? ......................................................................................... 19 SUMMARY AND CONCLUSIONS .......................................................................................................................... 19 CHAPTER 4 - PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION STUDY AND REPORT .................................................................................................................................................................... 20 INTRODUCTION ..................................................................................................................................................... 20 WHAT IS A "QUALITY" COST SEGREGATION STUDY? ...................................................................................... 20 www.costsegs.com • [email protected] • 877-633-9840 PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION STUDY ............................................................ 20 PRINCIPAL ELEMENTS OF A QUALITY COST SEGREGATION REPORT.......................................................... 24 SUMMARY AND CONCLUSIONS .......................................................................................................................... 25 CHAPTER 5 - REVIEW AND EXAMINATION OF A COST SEGREGATION STUDY ............................... 26 INTRODUCTION ..................................................................................................................................................... 26 STEPS FOR REVIEWING A COST SEGREGATION STUDY AND REPORT ........................................................ 26 SUMMARY AND CONCLUSIONS .......................................................................................................................... 37 APPENDIX - CHAPTER 6.1 - UNIFORM CAPITALIZATION ..................................................................... 38 INTRODUCTION ..................................................................................................................................................... 38 APPLICATION OF THE CAPITALIZATION RULES UNDER IRC § 263A .............................................................. 38 Capitalization of Costs under IRC § 263A(a) ........................................................................................................... 38 Capitalization of Interest under IRC § 263A(f) ......................................................................................................... 39 APPENDIX - CHAPTER 6.2 - CHANGE IN ACCOUNTING METHOD ...................................................... 41 INTRODUCTION ..................................................................................................................................................... 41 HISTORICAL SERVICE POSITION ........................................................................................................................ 41 RECENT LITIGATION ............................................................................................................................................. 41 NEW REGULATIONS ............................................................................................................................................. 41 LOOK-BACK STUDIES ........................................................................................................................................... 42 SUMMARY AND CONCLUSIONS .......................................................................................................................... 43 Table 1 - Revenue Procedures Relative to Cost Segregation Studies .................................................................... 44 APPENDIX - CHAPTER 6.3 - DEPRECIATION OVERVIEW ..................................................................... 45 INTRODUCTION ..................................................................................................................................................... 45 HISTORICAL BACKGROUND - A BRIEF RECAP .................................................................................................. 45 GUIDELINES FOR THE CLASSIFICATION OF ASSETS - MACRS ...................................................................... 45 APPENDIX - CHAPTER 6.4 - RELEVANT COURT CASES ...................................................................... 51 INTRODUCTION ..................................................................................................................................................... 51 ARRANGEMENT OF INFORMATION .................................................................................................................... 51 CASE CITATIONS .................................................................................................................................................. 51 TABLE BY CASE NAME ........................................................................................................................................
Load more

Recommended publications
  • Depreciation Recovery Periods and Methods
    Report to The Congress on Depreciation Recovery Periods and Methods Department of the Treasury July 2000 July 282000 The Honorable Bill Archer Chairman Committee on Ways and Means House of Representatives Washington, DC 205 15 Dear Mr. Chairman: Section 2022 of P.L. 105-277, the Tax and Trade Relief Extension Act of 1998 (the 1998 Act), directed the Secretary of the Treasury to conduct a comprehensive study of the recovery periods and depreciation methods under section 168 of the Internal Revenue Code and to provide recommendations for determining those periods in a more rational manner. The 1998 Act directed the Secretary to submit the results of the study and recommendations to the House Committee on Ways and Means and the Senate Finance Committee by March 3 1,200O. Pursuant to that directive, I hereby submit the “Report to the Congress on Depreciation Recovery Periods and Methods.” I am sending a similar letter to Senator William V. Roth, Jr., Chairman of the Committee on Finance, Senator Daniel P. Moynihan, and Representative Charles B. Rangel. Sincerely, Jonathan Talisman Acting Assistant Secretary Tax Policy Encl.osure L July 28,200O The Honorable William V. Roth, Jr. Chairman Committee on Finance United States Senate Washington, DC 205 10 Dear Mr. Chairman: Section 2022 of P.L. 105-277, the Tax and Trade Relief Extension Act of 1998 (the 1998 Act), directed the Secretary of the Treasury to conduct a comprehensive study of the recovery periods and depreciation methods under section 168 of the Internal Revenue Code and to provide recommendations for determining those periods in a more rational manner.
    [Show full text]
  • Sage Fixed Assets Depreciation Fundamentals 2017.1
    Sage Fixed Assets Depreciation Fundamentals 2017.1 User guide January 2017 Last updated: December 19, 2016 © 2017 The Sage Group plc or its licensors. All rights reserved. Sage, Sage logos, and Sage product and service names mentioned herein are the trademarks of The Sage Group plc or its licensors. All other trademarks are the property of their respective owners. Sage End User License Agreement (EULA): http://na.sage.com/sage-na/eula Sage Fixed Assets Depreciation Fundamentals Contents Section 1:Introduction: Features and More Features... 1-i Section 1:Preface: Historical Overview 1-i A History of Depreciation . 1-vii Section I: Fundamentals of Depreciation I-1 What Are Fixed Assets? . I-1 Who May Claim Depreciation? . I-2 What Property May Be Depreciated? . I-2 Additional Expenditures . I-4 Financial Reporting . I-4 Elements of Depreciation . I-7 Tax Reporting . I-7 Type of Property . I-10 The Date Placed in Service . I-11 Estimated Useful Life . I-12 Depreciable Basis . I-12 Basis Used for Depreciation . I-12 Trade-ins and Basis . I-14 Miscellaneous Basis Issues . I-18 Multiple Depreciation Calculations: An Overview . I-19 Section II: Amortization II-1 Amortization of Property for Financial Reporting Purposes . II-2 Computer Software . II-2 Copyrights . II-3 Covenants-Not-To-Compete . II-3 Customer Lists . II-3 Easements . II-3 Franchises . II-4 Sage Fixed Assets - Depreciation Fundamentals Contents-1 Contents Goodwill . II-4 Leasehold Improvements . II-4 Organization Costs . II-4 Patents . II-5 Research and Development Costs . II-5 Trademarks and Trade Names . II-5 Amortization of Property for Tax Reporting Purposes .
    [Show full text]
  • Tax Reform in the 113Th Congress: an Overview of Proposals
    Tax Reform in the 113th Congress: An Overview of Proposals Molly F. Sherlock Specialist in Public Finance March 24, 2014 Congressional Research Service 7-5700 www.crs.gov R43060 Tax Reform in the 113th Congress: An Overview of Proposals Summary Many agree that the U.S. tax system is in need of substantial reforms. The 113th Congress continues to explore ways to make the U.S. tax system simpler, fairer, and more efficient. Identifying and enacting policies that will result in a simpler, fairer, and more efficient tax system remains a challenge. On February 26, 2014, House Ways and Means Committee Chairman Dave Camp released a comprehensive tax reform discussion draft, the Tax Reform Act of 2014. This draft proposes substantial changes to both the individual and corporate income tax systems, reducing statutory tax rates for many taxpayers, while repealing dozens of credits, deductions, and other tax preferences. The Tax Reform Act of 2014 builds on previously released discussion drafts related to international tax, financial products, and small business. Earlier in the 113th Congress, former Senate Finance Committee Chairman Max Baucus released several tax reform discussion drafts, addressing international tax, cost recovery, tax administration, and energy tax policy. Other legislation has been introduced in the 113th Congress that would fundamentally change the U.S. federal tax system. The Fair Tax Act of 2013 (H.R. 25/S. 122) would replace most current federal taxes with a 23% national retail sales tax. Other proposals would establish a flat tax, where individuals would be taxed on wages and businesses taxed on cash flows (see the Flat Tax Act (H.R.
    [Show full text]
  • An Overview of Recent Tax Reform Proposals
    An Overview of Recent Tax Reform Proposals Mark P. Keightley Specialist in Economics February 28, 2017 Congressional Research Service 7-5700 www.crs.gov R44771 An Overview of Recent Tax Reform Proposals Summary Many agree that the U.S. tax system is in need of reform. Congress continues to explore ways to make the U.S. tax system simpler, fairer, and more efficient. In doing so, lawmakers confront challenges in identifying and enacting policies, including consideration of competing proposals and differing priorities. To assist Congress as it continues to debate the intricacies of tax reform, this report provides a review of legislative tax reform proposals introduced since the 113th Congress. Although no comprehensive tax reforms have been introduced into legislation yet in the 115th Congress, two 2016 reform proposals appear to be at the forefront of current congressional debates—the House GOP’s “A Better Way” tax reform proposal, released in June 2016, and President Trump’s campaign reform proposal, released in September 2016. As with most recent tax reform proposals, both of these plans call for lower tax rates coupled with a broader tax base. In either case, numerous technical details would need to be addressed before either plan could be formulated into legislation. Several proposals have already been introduced in the 115th Congress to replace the current income tax system. The Fair Tax Act of 2017 (H.R. 25/S. 18) would repeal the individual income tax, the corporate income tax, all payroll taxes, the self-employment tax, and the estate and gift taxes. These taxes would be effectively replaced with a 23% (tax-inclusive, meaning that the rate is a proportion of the after-tax rather than the pre-tax value) national retail sales tax.
    [Show full text]
  • 2011–2012 Federal Income Tax Law Course Deskbook
    2011-2012 FEDERAL INCOME TAX LAW COURSE DESKBOOK November 2011 - January 2012 Deskbook Table of Contents Page Administrative Matters Faculty Biographies ............................................................................................................... ii Outlines and Materials Communicating with the IRS ............................................................................................. A-1 Professional Responsibility ................................................................................................. B-1 Casualty Tax Issues .............................................................................................................C-1 Deployment Tax Issues ....................................................................................................... D-1 Adjustments to Income ........................................................................................................ E-1 Tax Aspects of Individual Retirement Arrangements (IRAs) ............................................. F-1 Tax Aspects of Stocks & Mutual Funds ............................................................................. G-1 Tax Aspects of Real Property ............................................................................................. H-1 Tax Credits ........................................................................................................................... I-1 Sale of Rental Property ........................................................................................................
    [Show full text]
  • Tax Reform in the 113Th Congress: an Overview of Proposals
    Tax Reform in the 113th Congress: An Overview of Proposals Molly F. Sherlock Specialist in Public Finance December 17, 2013 Congressional Research Service 7-5700 www.crs.gov R43060 Tax Reform in the 113th Congress: An Overview of Proposals Summary Many agree that the U.S. tax system is in need of substantial reforms. The 113th Congress continues to explore ways to make the U.S. tax system simpler, fairer, and more efficient. Identifying and enacting policies that will result in a simpler, fairer, and more efficient tax system remains a challenge. Both the House- and Senate-passed budget resolutions (H.Con.Res. 25 and S.Con.Res. 8) call for substantial changes in current tax law. The House-passed proposal supports revenue-neutral comprehensive tax reform, while the Senate-passed proposal instructs the Finance Committee to draft revenue legislation that would reduce the deficit by $975 billion over the 2013 to 2023 budget window. The Bipartisan Budget Act of 2013 did not include general instructions related to tax reform, although the budget did include several deficit-neutral reserve funds for Senate budget enforcement. The President’s FY2014 budget proposal also contains substantive changes to current revenue policies. Presently, the House Committee on Ways and Means and the Senate Committee on Finance are actively engaged in tax reform deliberations. The Committee on Ways and Means has released several discussion drafts outlining options for various components of tax reform, and has also formed tax reform working groups to further consider tax reform as it relates to different issue areas. The Committee on Finance has also released several tax reform discussion drafts in addition to the earlier options papers, which had provided a broad spectrum of tax reform ideas and proposals.
    [Show full text]
  • Calculating Depreciation
    Calculating Depreciation Circular 658 Revised by Terry Crawford1 Cooperative Extension Service • College of Agricultural, Consumer and Environmental Sciences Performing the mathematical steps to calculate deprecia- taken. For a piece of property to have no basis, then, tion is not difficult, but small computational errors can means that nothing was directly paid for the property. have large tax consequences. As a result, each farmer and An example of property with no basis is raised livestock. rancher should know how depreciation is calculated and Technically, no raised livestock has a basis because noth- understand the effect depreciation methods can have on ing was actually paid for the newborn animal. Certainly taxable income, even if a professional tax practitioner there were costs attributable to the production of that recalculates the figures for the tax return. animal, such as the feed costs, veterinary bills, and other costs that went into maintaining its mother. But for a cash-basis taxpayer, those costs were written off as BASIS IN PROPERTY expenses in the year in which they were incurred. Con- Despite the fact that they have long lives, are require- sequently, no purchase price is left to be attached to the ments of production, and have fairly high purchase newborn animal. Because there is no purchase price, prices, certain long-lived assets cannot be depreciated for there really is nothing to depreciate. If the costs were income tax purposes, and should not be depreciated for accumulated on an accrual basis and not expensed in business analysis purposes. Nondepreciable, long-lived the year paid, then the amount of those costs could be assets generally fall into one of three major categories: depreciated.
    [Show full text]
  • Federal Register/Vol. 69, No. 116/Thursday, June 17, 2004/Rules
    33840 Federal Register / Vol. 69, No. 116 / Thursday, June 17, 2004 / Rules and Regulations Authority: 21 U.S.C. 360b. notice of proposed rulemaking were as a disposition of the property. withdrawn (REG–138499–02; 69 FR Depreciation for the year of change is § 522.23 [Amended] 9560). No public hearing was requested computed by taking into account the I 2. Section 522.23 is amended in or held. Written or electronic comments applicable convention. No gain, loss, or paragraph (b), introductory text, by responding to the notice of proposed depreciation recapture is recognized removing ‘‘000856 and 059130’’ and by rulemaking were received. After upon the conversion. A commentator adding in its place ‘‘000010, 000856, and consideration of all the comments, the questioned whether recapture of excess 059130’’. proposed regulations are adopted as depreciation under section 280F(b)(2) Dated: May 18, 2004. amended by this Treasury decision. The occurs upon a conversion of listed Andrew J. Beaulieu, revisions are discussed below. property from business use to only personal use. Upon this conversion, the Acting Director, Center for Veterinary Explanation of Provisions Medicine. listed property is not predominantly Scope used in a qualified business use for that [FR Doc. 04–13602 Filed 4–16–04; 8:45 am] taxable year for purposes of section BILLING CODE 4160–01–S The final regulations provide the rules 280F(b) and, consequently, section for determining the annual depreciation 280F(b)(2) requires any excess allowance under section 168 for MACRS depreciation (as defined in section DEPARTMENT OF THE TREASURY property as a result of a change in the 280F(b)(2)(B)) to be included in gross use of such property.
    [Show full text]
  • Capitalization of Tangible Property
    Internal Revenue Service Capitalization of Tangible Property Treas. Reg. § 1.263(a) and related regulations Large Business and International 9/14/2016 Table of Contents CHAPTER 1 EXAMINATION OF TANGIBLE PROPERTY .............. i INTRODUCTION .................................................................................................................. 1 CAPITALIZATION OF TANGIBLE PROPERTY – BACKGROUND ..................................... 1 FINAL REGULATIONS - OVERVIEW .................................................................................. 3 GENERAL TERMINOLOGY ................................................................................................. 4 CHAPTER 2 COMPLIANCE CONSIDERATIONS ......................... 11 IMPLEMENTATION OF THE REGULATIONS ................................................................... 11 CAPITALIZATION TO REPAIR STUDIES ......................................................................... 11 STAND DOWN ................................................................................................................... 12 STATISTICAL SAMPLING ................................................................................................. 12 INDUSTRY SPECIFIC GUIDANCE.................................................................................... 13 COORDINATION WITH OTHER CODE SECTIONS ......................................................... 15 EXAMINATION CONSIDERATIONS ................................................................................. 19 INTERVIEW QUESTIONS ................................................................................................
    [Show full text]
  • 2004 Chapter 8
    2004 Workbook Chapter 8: Alternative Minimum Tax (AMT) Introduction .............................................................. 243 Calculating AMT for C Corporations.................... 266 AMT for Individuals ................................................ 244 Appendix ................................................................... 267 Calculating AMT for Partnerships and S Corporations .................................................. 263 Corrections were made to this workbook through January of 2005. No subsequent modifications were made. INTRODUCTION Alternative minimum tax (AMT) laws have been in existence since 1969. The minimum tax was enacted after Congress learned that 155 taxpayers with AGI of $200,000 or more in 1966 paid no federal income tax. The purpose of AMT was to prevent high income taxpayers from exploiting the regular income tax system benefits available to lower income taxpayers. In the Taxpayer Advocate’s 2003 Annual Report to Congress, it was reported that over 660,000 taxpayers with AGI under $200,000 paid AMT in 2001. The report states that the AMT appears to function “randomly, no longer with any logical basis in sound tax administration or any connection with its original purpose of taxing the very wealthy who escape taxation. Congress must address the AMT before it bogs down tax administration and increases taxpayers’ 8 cynicism to such a level that overall compliance declines.” The report also stated that the number of taxpayers with AGI under $50,000 who owed AMT in 2001 was about the same as the number of taxpayers with AGI between $475,000 and $500,000, who did not owe AMT. It is estimated in the report that, with no changes, the AMT will affect 32 million taxpayers by 2010 and that over 50% of AMT revenue will come from taxpayers whose income is less than $100,000.
    [Show full text]
  • OTA Paper 93: the Corporate Alternative Minimum Tax
    The Corporate Alternative Minimum Tax Aggregate Historical Trends by Curtis P. Carlson U.S. Department of the Treasury OTA Paper 93 June 2005 OTA Papers is an occasional series of reports on the research, models, and data sets developed to inform and improve Treasury’s tax policy analysis. The papers are works in progress and subject to revision. Views and opinions expressed are those of the authors and do not necessarily represent official Treasury positions or policy. OTA Papers are distributed in order to document OTA analytic methods and data and invite discussion and suggestions for revision and improvement. Comments are welcome and should be directed to the authors. Office of Tax Analysis Department of the Treasury Washington, DC 20220 The views expressed in this paper are those of the author and do not necessarily reflect those of the U.S. Department of the Treasury. The author wishes to thank Robert Carroll, Geraldine Gerardi and Andrew Lyon for their comments and suggestions. Comments are welcome: Curtis Carlson, Office of Tax Analysis, U.S. Department of the Treasury, 1500 Pennsylvania Ave., NW, Washington D.C. 20220. [email protected] The Corporate Alternative Minimum Tax Aggregate Historical Trends by Curtis P. Carlson U.S. Department of the Treasury OTA Paper 93 June 2005 OTA Papers is an occasional series of reports on the research, models, and data sets developed to inform and improve Treasury’s tax policy analysis. The papers are works in progress and subject to revision. Views and opinions expressed are those of the authors and do not necessarily represent official Treasury positions or policy.
    [Show full text]
  • Publication 946, How to Depreciate Property
    Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 10 Draft Ok to Print AH XSL/XML Fileid: … tions/P946/2020/A/XML/Cycle02/source (Init. & Date) _______ Page 1 of 113 11:15 - 17-Mar-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Department of the Treasury Contents Internal Revenue Service Future Developments ....................... 2 Publication 946 What’s New for 2020 ....................... 2 Cat. No. 13081F What's New for 2021 ........................ 2 Reminders ............................... 2 How To Introduction .............................. 2 Chapter 1. Overview of Depreciation .......... 3 Depreciate What Property Can Be Depreciated? .......... 4 What Property Cannot Be Depreciated? ........ 6 When Does Depreciation Begin and End? ...... 7 Property What Method Can You Use To Depreciate Your Property? ........................ 8 What Is the Basis of Your Depreciable • Section 179 Deduction Property? ........................... 11 • Special Depreciation How Do You Treat Repairs and Improvements? ...................... 13 Allowance Do You Have To File Form 4562? ........... 13 • MACRS How Do You Correct Depreciation Deductions? ......................... 13 • Listed Property Chapter 2. Electing the Section 179 Deduction ........................ 15 For use in preparing What Property Qualifies? .................. 15 What Property Does Not Qualify? ........... 17 2020 Returns How Much Can You Deduct? ............... 17 How Do You Elect the Deduction? ........... 22 When Must You Recapture the Deduction? .... 22 Chapter 3. Claiming the Special Depreciation Allowance ................. 23 What Is Qualified Property? ................ 23 How Much Can You Deduct? ............... 26 How Can You Elect Not To Claim an Allowance? ......................... 27 When Must You Recapture an Allowance? ..... 27 Chapter 4. Figuring Depreciation Under MACRS ........................ 28 Which Depreciation System (GDS or ADS) Applies? ..........................
    [Show full text]