The following message from Bob Jennings was part of his e-newsletter I received in my inbox this morning. Is anyone else on this board familiar with these proposed regs? I downloaded the proposed regulations from the link provided. The meat of what Bob is talking about starts on page 124. There are many people on this board whom are far more fluent in the IRS code than myself. I’d be interested to hear your opinions.
If you have attended our live seminars this year you have heard Bob screaming about the IRS' attempt to circumvent law and the Court system with their new "Repair Allowance" proposal. The new Proposed Regulations are open for public comment through 12/19/06. [Prop. Reg. 1.162-4 and Prop. Reg. 1.263(a)-0 through 1.263(a)-3]
The proposal would require taxpayers to capitalize amounts using a repair allowance percentage, in stark contrast to recent court decisions and Regulations which require the taxpayer to analyze repairs and determine capitalization under the life, value & usefulness tests.
The way the new proposed regs would work would be to determine the average cost basis in the class life and multiply it by an IRS assigned percentage. For example, if the taxpayer had an average cost balance of $100,000 in their building class, they would multiply it by the IRS assigned 1.28% to arrive at $1,280. Any amounts spent over that amount in the year would be capitalized and depreciated over 39 years rather than expensed as repairs! And you wonder why I am so upset-if I spend $2,500 repairing drywall damage caused by a tenant I would be required to depreciate $1,220 over 39 years!
Originally I had planned on providing our readers with an IRS comment letter. I no longer believe that this is enough. In the USA our Congress establishes Tax Law and the Courts interpret the laws. The courts have clearly interpreted the law in accordance with the life, value, usefulness rules, and the IRS is trying to override the courts with these proposed regulations. I cannot believe that Congress would allow this to happen, if they were aware of the IRS obvious attack on businesses in clear defiance of the Courts and the law as established by Congress. I therefore recommend that you, like me, write your elected Senators and Representatives immediately, and have your clients contact them as well. Only a ground swell of business opposition can stop the IRS on this one. Senator mailing addresses are here. Representatives mailing addresses are here.
If you have attended our live seminars this year you have heard Bob screaming about the IRS' attempt to circumvent law and the Court system with their new "Repair Allowance" proposal. The new Proposed Regulations are open for public comment through 12/19/06. [Prop. Reg. 1.162-4 and Prop. Reg. 1.263(a)-0 through 1.263(a)-3]
The proposal would require taxpayers to capitalize amounts using a repair allowance percentage, in stark contrast to recent court decisions and Regulations which require the taxpayer to analyze repairs and determine capitalization under the life, value & usefulness tests.
The way the new proposed regs would work would be to determine the average cost basis in the class life and multiply it by an IRS assigned percentage. For example, if the taxpayer had an average cost balance of $100,000 in their building class, they would multiply it by the IRS assigned 1.28% to arrive at $1,280. Any amounts spent over that amount in the year would be capitalized and depreciated over 39 years rather than expensed as repairs! And you wonder why I am so upset-if I spend $2,500 repairing drywall damage caused by a tenant I would be required to depreciate $1,220 over 39 years!
Originally I had planned on providing our readers with an IRS comment letter. I no longer believe that this is enough. In the USA our Congress establishes Tax Law and the Courts interpret the laws. The courts have clearly interpreted the law in accordance with the life, value, usefulness rules, and the IRS is trying to override the courts with these proposed regulations. I cannot believe that Congress would allow this to happen, if they were aware of the IRS obvious attack on businesses in clear defiance of the Courts and the law as established by Congress. I therefore recommend that you, like me, write your elected Senators and Representatives immediately, and have your clients contact them as well. Only a ground swell of business opposition can stop the IRS on this one. Senator mailing addresses are here. Representatives mailing addresses are here.
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