Vol. 78 Thursday, No. 182 September 19, 2013 Part II Department of the Treasury Internal Revenue Service 26 CFR Parts 1 and 602 Guidance Regarding Deduction and Capitalization of Expenditures Related to Tangible Property; Final Rule VerDate Mar<15>2010 18:06 Sep 18, 2013 Jkt 229001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\19SER2.SGM 19SER2 tkelley on DSK3SPTVN1PROD with RULES2 57686 Federal Register / Vol. 78, No. 182 / Thursday, September 19, 2013 / Rules and Regulations DEPARTMENT OF THE TREASURY 11, 1.263(a)–1, 1.263(a)–2, 1.263(a)–3, Background and 1.263(a)–6, Merrill D. Feldstein or Section 263(a) provides that no Internal Revenue Service Alan S. Williams, Office of Associate deduction is allowed for (1) any amount Chief Counsel (Income Tax and paid out for new buildings or permanent 26 CFR Parts 1 and 602 Accounting), (202) 622–4950 (not a toll- improvements or betterments made to [TD 9636] free call); Concerning §§ 1.165–2, increase the value of any property or 1.167(a)–4, 1.167(a)–7, 1.167(a)–8, RIN 1545–BE18 estate, or (2) any amount expended in 1.168(i)–7, 1.263A–1, and 1.1016–3, restoring property or in making good the Kathleen Reed or Patrick Clinton, Office Guidance Regarding Deduction and exhaustion thereof for which an Associate Chief Counsel (Income Tax Capitalization of Expenditures Related allowance has been made. Final and Accounting), (202) 622–4930 (not a to Tangible Property regulations previously issued under toll-free call). section 263(a) provided that capital AGENCY: Internal Revenue Service (IRS), SUPPLEMENTARY INFORMATION: expenditures included amounts paid or Treasury. incurred to (1) add to the value, or Paperwork Reduction Act ACTION: Final regulations and removal of substantially prolong the useful life, of temporary regulations. The collection of information property owned by the taxpayer, or (2) contained in this final regulation has adapt the property to a new or different SUMMARY: This document contains final been reviewed and approved by the use. However, those regulations also regulations that provide guidance on the Office of Management and Budget in provided that amounts paid or incurred application of sections 162(a) and 263(a) accordance with the Paperwork for incidental repairs and maintenance of the Internal Revenue Code (Code) to Reduction Act of 1995 (44 U.S.C. of property within the meaning of amounts paid to acquire, produce, or 3507(d)) under control number 1545– section 162 and § 1.162–4 of the Income improve tangible property. The final 2248. An agency may not conduct or Tax Regulations are not capital regulations clarify and expand the sponsor, and a person is not required to expenditures under § 1.263(a)–1. standards in the current regulations respond to, a collection of information The determination of whether an under sections 162(a) and 263(a). These unless the collection of information expense may be deducted as a repair or final regulations replace and remove displays a valid control number must be capitalized generally requires temporary regulations under sections assigned by the Office of Management an examination of all of a taxpayer’s 162(a) and 263(a) and withdraw and Budget. particular facts and circumstances. proposed regulations that cross The collection of information in this Moreover, the subjective nature of the referenced the text of those temporary existing standards described above has regulations. This document also regulation is in §§ 1.263(a)–1(f)(5), 1.263(a)–3(h)(6), and 1.263(a)–3(n)(2). resulted in considerable controversy contains final regulations under section between taxpayers and the IRS over 167 regarding accounting for and This information is required in order for a taxpayer to elect to use the de minimis many years. retirement of depreciable property and In 2006, in an effort to reduce the final regulations under section 168 safe harbor, to elect to use the safe harbor for small taxpayers, and to elect controversy in this area, the IRS and the regarding accounting for property under Treasury Department published in the the Modified Accelerated Cost Recovery to capitalize repair and maintenance costs. This information will inform the Federal Register August 21, 2006 (71 FR System (MACRS) other than general 48590) proposed amendments to the asset accounts. The final regulations IRS that the taxpayer is electing to use these provisions, which allows regulations under section 263(a) relating will affect all taxpayers that acquire, to amounts paid to acquire, produce, or produce, or improve tangible property. taxpayers to obtain beneficial treatment for the amounts that qualify for these improve tangible property. The IRS and These final regulations do not finalize or the Treasury Department received remove the 2011 temporary regulations elections. The collection of information is voluntary to obtain a benefit under numerous written comments in under section 168 regarding general response to these proposed regulations. asset accounts and disposition of the final regulations. The likely respondents are business or other for- After considering these comments and property subject to section 168, which the statements at the public hearing, in are addressed in the notice of proposed profit institutions, and small businesses or organizations. 2008 the IRS and the Treasury rulemaking on this subject in the Department withdrew the 2006 Estimated total annual reporting Proposed Rules section in this issue of proposed regulations and proposed new burden: 1,100,000 hours. the Federal Register. regulations in the Federal Register DATES: Effective Date: These regulations Estimated annual burden hours per March 10, 2008 (73 FR 12838). The IRS are effective on September 19, 2013. respondent varies from .25 hours to .5 and the Treasury Department also Applicability Dates: In general, these hours, depending on individual received many written comments and final regulations apply to taxable years circumstances, with an estimated held a public hearing on the 2008 beginning on or after January 1, 2014. average of .275 hours. proposed regulations. On December 27, However, certain rules apply only to Estimated number of respondents: 2011, the IRS and the Treasury amounts paid or incurred in taxable 4,000,000. Department published temporary years beginning on or after January 1, Estimated frequency of responses: regulations in the Federal Register 2014. For dates of applicability of the Annually. regarding the deduction and final regulations, see §§ 1.162–3(j), Books or records relating to a capitalization of expenditures related to 1.162–4(c), 1.162–11(b)(2), 1.165–2(d), collection of information must be tangible property (TD 9564; 76 FR 1.167(a)–4(b), 1.167(a)–7(f), 1.167(a)– retained as long as their contents may 81060), withdrew the 2008 proposed 8(h), 1.168(i)–7(e), 1.263(a)–1(h), become material in the administration regulations, and published new 1.263(a)–2(j), 1.263(a)–3(r), 1.263(a)– of any internal revenue law. Generally, proposed regulations that cross 6(c), 1.263A–1(l), and 1.1016–3(j). tax returns and tax return information referenced the text of the 2011 FOR FURTHER INFORMATION CONTACT: are confidential, as required by section temporary regulations. The 2011 Concerning §§ 1.162–3, 1.162–4, 1.162– 6103. temporary regulations initially applied VerDate Mar<15>2010 18:06 Sep 18, 2013 Jkt 229001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\19SER2.SGM 19SER2 tkelley on DSK3SPTVN1PROD with RULES2 Federal Register / Vol. 78, No. 182 / Thursday, September 19, 2013 / Rules and Regulations 57687 to taxable years beginning on or after Explanation of Provisions for property subject to section 168. January 1, 2012. The IRS and the I. Overview Instead, to address significant changes Treasury Department received in this area, revised regulations under numerous written comments in Section 263(a) generally requires the section 168 are being proposed response to the 2011 temporary and capitalization of amounts paid to concurrently with these final acquire, produce, or improve tangible proposed regulations and held a public regulations (and appear in the Proposed property. Section 162 allows a hearing on May 9, 2012. After Rules section of this issue of the Federal deduction for all the ordinary and Register). considering these comments and the necessary expenses paid or incurred statements at the public hearing, the IRS during the taxable year in carrying on II. Materials and Supplies Under and the Treasury Department published any trade or business, including the § 1.162–3 Notice 2012–73 (2012–51 IRB 713), on costs of certain supplies, repairs, and Responding to generally favorable November 20, 2012, announcing that, to maintenance. These final regulations comments on the treatment of materials assist taxpayers in their transitions to provide a general framework for and supplies in the 2011 temporary the 2011 temporary regulations and distinguishing capital expenditures regulations, the final regulations retain final regulations, the IRS and the from supplies, repairs, maintenance, the framework and many of the rules set Treasury Department would change the and other deductible business expenses. forth in the 2011 temporary regulations. applicability date of the 2011 temporary The final regulations retain many of the In response to comments, however, the regulations to taxable years beginning provisions of the 2011 temporary and final regulations expand the definition on or after January 1, 2014, while proposed regulations (2011 temporary of materials and supplies to include permitting taxpayers to choose to apply regulations), which in many instances property that has an acquisition or the 2011 temporary regulations to incorporated standards from case law production cost of $200 or less taxable years beginning on or after and other existing authorities under (increased from $100 or less), clarify January 1, 2012, and before the sections 162 and 263(a).