Locked in with Sissy Spacek

[Golden Rocket]

I am reading the several responses to the $2500 DeMinimus thread below and wonder if the following discussion is appropriate.

There are times when the taxpayer should avoid being locked in. Like with Sissy Spacek and the Senior Prom. I'll tell you this much - the IRS avoids being locked in on any number of occasions when writing their regs. They don't want to commit to any position that will cost them an adverse position in a court ruling.

Court rulings aside, some of the responses below would encourage taxpayers to rush in to adopting a capitalization policy using this new threshold. Other responses say that if such a policy is adopted, then it must be followed such that no expenditure less than $2500 can be capitalized. Still others warn that expensing rather than capitalizing in a loss year is harmful.

Consider:
1) if a policy can be written that can give the taxpayer options for aggregate amounts (where items are purchased in large lots but no single item is over $2500)
2) if a policy can be applied piecemeal to certain KINDS of items, such as cattle. Or better yet, computers and peripheral equipment which have such short lives that they are almost expense items to begin with
3) if a policy can give the taxpayer lower options in loss years (similar to choosing 179s, alternative MACRS, conventions, and methods which are very broad options)

[DaveO]

I have been wondering the same. Does the written policy trump the all or nothing verbiage of the election? A set of belts for a combine would easily top $2500 but I wouldn't consider them anything but repairs. Treating breeding cattle as supplies seems absurd to me especially if you lose capital gain treatment upon disposition. On the other hand putting bees or laying hens on a depreciation schedule is equally absurd. We can only hope for guidance.

[TaxGuyBill]

I agree that your Point #2 is able to be done. Nothing in the Regulation seems to prohibit that (see my long winded discussion later).

I don't quite understand your Point #1. Can you give a more specific example to clarify it?

Point #3 might be possible, but could be questionable or problematic. I would hesitate to do that. However, this is a 'de minimis' ELECTION, so if the taxpayer doesn't make this election for a particular year, the default depreciation threshold is $200 (see also my long winded comments below).



Here is the part of the legal gobbledygook: (B) The taxpayer has at the beginning of the taxable year accounting procedures treating as an expense for non-tax purposes—

(1) Amounts paid for property costing less than a specified dollar amount; or

(2) Amounts paid for property with an economic useful life (as defined in §1.162-3(c)(4)) of 12 months or less;

(C) The taxpayer treats the amount paid for the property as an expense on its books and records in accordance with these accounting procedures; and

(D) The amount paid for the property does not exceed $500 per invoice (or per item as substantiated by the invoice) or other amount as identified in published guidance in the Federal Register or in the Internal Revenue Bulletin (see §601.601(d)(2)(ii)(b) of this chapter).



Here is how I read things, and my associated thoughts:

The taxpayer needs to have "accounting procedures" for "non-tax purposes" for "amounts paid for property costing less than a specified dollar amount"

The default for TAX purposes is $200. If the taxpayer has this procedure for NON-TAX purposes, the have the OPTION to make an ELECTION year-by-year. If they do not make the election, the default depreciation threshold is $200.

This non-tax accounting procedure needs to have a "specified amount". It does NOT necessarily need to be $500 or $2500. It could be $300, or it could be $30,000. If it's $300, they this election affects items under $300. If it's $30,000, this election affects items under $500/$2500.

For the phrase "Amounts paid for property costing less than a specified dollar amount", I would think a taxpayer could have their "accounting procedures" to vary for different items. For example, I would think they could decide to have their non-tax accounting procedure to deduct livestock under $300, and all other items under $10,000. Nothing in the Regulation seems to prohibit that.

[TAXNJ]

Year

Is your "part of the legal gobbledygook" apply to the rules (regs) beginning 1-1-16 or prior or both?