IRS Issues Regulations on Tangible Assets--What to Capitalize

(Post #500) The Treasury Department and Internal Revenue Service issued proposed regulations designed to clarify the treatment of costs associated with the production, purchase or sale of tangible long-lived assets. The regulations, heavily based on case law, address such issues as whether to capitalize or to expense expenditures made subsequent to initial purchase. Additionally, estimated life of assets and actions prolonging estimated life were addressed. Not addressed was a de minimis provision for small tools; the IRS specifically asked for comments on this issue. The written comment period for the proposed regulations runs through November 20 with a public hearing scheduled for December 19. Up soon--costs to capitalize for computer software and acquisitions made through issuing stock.

Hopefully, the final regulations will address the de minimis issue in a reasonable manner. It is not clear whether the estimated life determinations will apply primarily to MACRS lives or to ADS/AMT lives.