Tangible Property Regulations

Effective date of Tangible Property Regulations delayed to 2014, but early compliance permitted beginning in 2012.

Late last year, the IRS issued Temporary Regulations that provide guidance on the treatment of amounts paid to acquire, produce, or improve tangible property. These important Regulations affect virtually all taxpayers that acquire, produce, or improve tangible property. Among other things, they clarify and expand the standards in the current tax law; provide certain new bright-line tests for applying these standards; provide guidance regarding the accounting for and dispositions of, property subject to depreciation; and amend the general asset account Regulations.

In a notice released November 20, 2012, the IRS has alerted taxpayers that it expects to issue Final Regulations on the deduction and capitalization of expenditures related to tangible property in 2013, and that it anticipates that these Regulations will contain changes from the recently issued Temporary Regulations. The IRS anticipates that the Final Regulations will apply to tax years beginning on or after January 1, 2014, but taxpayers will be allowed to apply the Final Regulations to tax years beginning on or after January 1, 2012. The IRS will also amend the Temporary Regulations to reflect this new effective date.

Because the IRS recognizes that taxpayers are expending resources to comply with the Temporary Regulations, the IRS notified taxpayers that certain sections of the Temporary Regulations may be revised in a manner that might affect, and in certain cases simplify, a taxpayer's implementation of the rules when finalized, including in particular the following areas:

• the de minimis rule under Reg. § 1.263(a)-2T(g);

• the treatment of dispositions under Reg.§ 1.168(i)-1T and Reg. § 1.168(i)-8T;

• and the safe harbor for routine maintenance under Reg. § 1.263(a)-3T(g).

Please contact your trusted tax advisors at Henderson Hutcherson & McCullough, PLLC today to discuss how these Regulations will impact your business. Call Jones Krogh at 423.702.7267 or jkrogh@hhmcpas.com.