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Tax Treatment The revenue code, as written, appears to follow closely the accounting treatment with regard to the nature and definition of each type of expenditure. However, the code, as applied by an examining agent, may be interpreted by the agent to fit his objective of maximizing the organization’s achieving the acceptance of the transaction by the Service. The following references from the code provide a guide for the Board and present the similarity with the accounting treatment discussed above. Code Sec. 162. Business Expenses-Repair and Maintenance Costs The regulations provide that incidental repairs which neither materially add to the value of the property nor appreciably prolong its life may be deductible….. …..One rule of thumb that emerges, however, is that a useful life for an item in excess of one year suggests that the item is a capital expenditure and not a current expense….. …..If the repair is part of a general plan of reconditioning and improving the property, however, the expenses should be capitalized even though standing alone they would be deductible. Code Sec. 262. Capital Expenditures 4320: Nature and Treatment of Capital Expenditures. Expenditures must be capitalized when the amounts paid are: a) for increasing the capital value or improving the usability, or for making good the depreciation (for which a deduction has been made) of property b) for items of plant, equipment, etc., that have a useful life extending substantially beyond the taxable year c) for repairs in the nature of replacements, to the extent that they arrest deterioration and appreciably prolong the life of the property; and d) for issuance of stock in payment of a stock dividend. …..Expenditures for the original construction of greens on a golf course are capital expenditures to be added to the original cost of the land. Subsequent operating expenses for sod, seed, soil, and other maintenance constitute deductible business expenses. |
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