Tax Alert

New Tangible Asset Regulations Require Action by Year-End

(Oct. 29, 2012)

As part of the sweeping set of regulations regarding capitalization and disposition rules for tangible property (TD 9564), the U.S. Department of Treasury (Treasury) for the first time has instituted a de minimis rule permitting the deduction of insignificant capital expenditures for federal income tax.

The rule is currently available to taxpayers who satisfy two conditions:

  1. Maintain “applicable financial statements” that satisfy one of the following tests:
    • The audited financial statements are filed with the Securities and Exchange Commission (SEC);
    • The taxpayer maintains audited financial statements accompanied by a report of an independent CPA; or
    • The financial statements are required to be provided to the federal or state government or any federal or state agencies (other than the SEC or Internal Revenue Service).
  2. Have a formal accounting policy documenting the capitalization policy as of the beginning of the tax year and account for such items in accordance with that policy on its financial statements.

The Treasury is considering expanding the definition of applicable financial statements beyond those noted above. As a result, taxpayers should implement a written de minimis capitalization policy by the beginning of their next tax year to satisfy the written policy requirement.

The beginning-of-the-tax-year written policy is one of the most time-sensitive provisions in the regulations. Failure to have a written policy in place by the beginning of the tax year could result in the loss of deductions afforded by the de minimis rules. This rule is just one of many that taxpayers must address to adopt the regulations.

For More Information
Ed Meyette

David Strong

Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.  

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Edward D. Meyette