Tangible property regulations:A practice guide to implementation

14 May 2013

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Disclaimer

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► The views expressed by panelists in this session are not necessarily those of Ernst & Young LLP.

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Circular 230 disclaimer

► Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.

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Today’s presenters

► Alison Jones► Daren Campbell► Brandon Carlton► Pat Chaback► Angela Evans► Kim Harrington► Dino Lombardi► Jeremy Watkins

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Tangible property regulations: starting your implementation efforts

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Overview and framework

Materials and supplies Acquisitions Improvements Depreciation and dispositions

§1.162-3T §1.263(a)-2T §1.263(a)-3T §§1.168(i)-1T,-7T,-8T§1.263(a)-1T

► Definition of materials and supplies

► Three categories of deductibility:► Incidental ► Non-incidental► Rotable spare parts

► Election to deduct under de minimis rule

► Election to capitalize and depreciate

► Capitalized costs include costs that facilitate acquisition of property ► Whether and which test for

real property► May expense employee

comp. and overhead

► De minimis rule: follow audited financial statement expensing up to ceiling (applied to each regarded entity)► Greater of:► 0.1% of tax gross

receipts,or2.0% of book depreciation/amortization

►Election to capitalize and depreciate

► Unit of property generally all functionally interdependent property except for:► Buildings► Plant property► Leased property

► Improvement defined:► Betterment► Restoration► New or different use

► Safe harbor for routine maintenance on property other than buildings

► Safe harbor for certain regulated entities

► No plan of rehabilitation

► Dispositions► General rules ► Required to recognize

disposition of structural components

► Reasonable identification methods

► Allowed vs. allowable issue► General asset accounts

► Flexibility to recognize (or not) dispositions of assets

► Annual election► One-time retroactive

election

► Remember: coordination with section 263A required for most changes; several “sleeper” elections

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Guidance and what we know

► Temp. regulations modified to be effective for tax years beginning on or after 1 January 2014*

► Final regulations expected to be effective for tax years beginning on or after 1 January 2014*

*certain provisions will be for costs incurred in taxable years beginning on or after 1 January 2014

Implementation final

TD 9564 temporary regulations

Rev. Proc. 2012-19 Rev. Proc. 2012-20

(Transition guidance)and

LB&I directive (stand-down from auditing repairs)

Final and re-proposed regulations transition guidance

ASC 740 event?

Effective date

Notice 2012-73

Amendments to TD 9564

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Washington insights

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Internal Revenue Service activity

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Implementation: requirements and options

Implementation final

2012 tax year 2014 tax year2013 tax year Sept 2015

2012 tax year options

► Continue pre-temporary regulation methods

► Early implementation of a section(s) of the temporary regulation

► Early implementation of a section(s) of the final regulations *

2013 tax year options

► Continue pre-temporary regulation methods

► Early implementation of a section(s) of the temporary regulation

► Early implementation of a section(s) of the final regulations *

2014 tax year options

► Implementation of the final regulations

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Data and technology

► Fixed assets► Material and supplies► Book policy► Current tax methods

Assessment tools Form 3115 generation

Extract Process Load

► Assess required changes► Collect supporting documentation► Compute section

481(a) adjustment

► Prepare form 3115► Update fixed assets► Configure source systems

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Financial reporting considerations

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Planning your company’s finish

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