The IRS Large Business and International (LB&I) operating division has issued an “audit techniques guide” (ATG) providing guidance to IRS examination teams auditing taxpayer implementation of the tangible property regulations.
Read the ATG [PDF 935 KB] Capitalization of Tangible Property: Treas. Reg. § 1.263(a) and related regulations
In general, the ATG contains few surprises. The document largely restates the basic rules of the tangible property regulations, and provides exam teams with instructions as to the issues they are likely to encounter and the information to request and consider in connection with audits of “repair studies.”
The 202-page ATG contains 18 chapters, with guidance on the treatment of costs to acquire, produce, repair, or improve property; dispositions of tangible property; and the procedures for making accounting method changes required by the tangible property regulations.
The structure of the ATG generally follows that of the tangible property regulations, with separate chapters for the following topics:
Much of the ATG is devoted to providing exam teams with a basic primer on the rules, definitions, and safe harbors set forth in the tangible property regulations for each of these topics. The first chapter includes a useful glossary of the basic concepts and definitions used in the regulations, along with cross-references to the specific section of the regulations containing each rule or definition. The document also compiles information for each of the accounting method changes potentially required by the tangible property regulations and the procedures for making such changes. These compilations may prove useful to taxpayers as well as to LB&I employees.
In addition to relatively concise explanations, the ATG illustrates each of the core concepts of the tangible property regulations using one or more examples. In many cases, the examples are simplified versions of those already contained in the tangible property regulations. In some situations, though, the ATG provides new examples, providing additional insights or clarity regarding specific provisions. For instance, the ATG provides a new example regarding the identification of units of property and major components of “plant property.”
The ATG provides:
For the most part, the examination techniques, questions, and areas of inquiry hold few surprises. The following elements of the ATG, however, are noteworthy:
For taxpayers currently under or anticipating being under audit for their implementation of the tangible property regulations, the ATG provides useful insights into the specific questions the IRS is likely to ask and the specific documentation the examiners likely will request and scrutinize. Although an ATG is just that—a guideline—exam teams likely will adhere closely to the suggested approaches to these audits, as the IRS builds its institutional understanding of the manner in which taxpayers implemented these regulations.
For more information, contact a tax professional with KPMG’s Washington National Tax practice:
Peter Baltmanis | +1 (214) 840-6756 | firstname.lastname@example.org
Lynn Afeman | +1 (202) 533-3839 | email@example.com
Mike Dolan | +1 (202) 533-6150 | firstname.lastname@example.org
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