IRS Corrections to Tangible Property Rules Show Concern Over Election

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Taxpayers will have to both capitalize and depreciate costs associated with spare parts and with materials and supplies if they make an election under final tangible property rules, the Internal Revenue Service said in correcting amendments to T.D. 9636.
Practitioners said the changes show the government is concerned that taxpayers might try to use the election in ways not originally intended under the regulations (T.D. 9636, RIN 1545-BE18) , issued in September 2013 (179 DTR GG-1, 9/16/13).
George Manousos, a tax partner at PricewaterhouseCoopers LLP, said the corrections show “the government wanted to make it clear that depreciation is the consequence of making the election.”
The rules now spell out that taxpayers can't make the election and then claim the loss in the same year, Manousos told Bloomberg BNA July 18. The corrections make “the rules consistent,” he said. “Whether or not it's favorable depends on your situation.”