ANALYSIS Te Cap Trap WRITTEN BY KIM A. MAHANNA, CPA
the retroactive regulations could impact past tax returns and deductions on everything from engine replacements to facility improvements — causing potential delays in filing and unexpected tax consequences. However, here I explain what fleet owners and CFOs can do
A
now to avoid paying back taxes and deal with amended return hassles on old assets. Te Internal Revenue Service instituted “repair regulations,”
which define whether to expense or capitalize amounts paid to acquire, produce or improve tangible property. Tese regulations were supposed to be effective Jan. 1, 2012. However, these regulations have been amended to reflect an applicability date of Jan. 1, 2014.
£Mahanna provides this chart as an example of how bus operators can evaluate the year-to-year expenditures made to update, replace and repair any tangible property or equipment. The goal, he said, is to help businesses avoid paying back taxes and deal with amended return hassles on old assets.
fter giving a two-year window of relief to business owners on new repair versus capitalization regulations, the IRS expects accounting methods to be adjusted to reflect the new standards by 2014. For bus fleets,
IRS “REPAIR REGULATIONS” COULD TAX OLD BUS EQUIPMENT, FACILITIES
HISTORY A number of years ago, a large cargo carrier with a fleet of
airplanes came under IRS scrutiny for their maintenance and repairs expenditures. Upon further analysis, it was discovered that the repair and/or replacement of airplane parts and components was being expensed on the income statement rather than capitalized and depreciated over the assets “useful life.” Tis triggered the question of whether these “repairs” did indeed extend the useful life of the asset and should they continue to be immediately expensed. Te regulation coming from the investigation suggests that any
“repair” under $100 could be appropriately expensed. Any costs to maintain and “keep tangible property in efficient operating condition” was a repair cost. However, any costs to improve the asset, which make it more valuable, more useful or longer lived, should be capitalized. »
68 School Transportation News March 2013
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