Lawmakers dispute IRS's capitalization of airline safety inspection costs.

• Author: Giordano, Nicholas P.

Members of the House Ways and Means Committee and the IRS differ on what should be the proper tax treatment of routine aircraft safety inspection and repair costs, and the House tax writers want the Service to reconsider its position or defend it at a congressional hearing.

In recent Letter Ruling (TAM) 9618004, the IRS took the position that routine aircraft safety inspection and repair costs must be capitalized and cannot be currently deducted as business expenses. In September 1996, House Ways and Means Committee Chairman Bill Archer (R-Tex.) took issue with the IRS's conclusions and requested in a letter to IRS Commissioner Margaret Milner Richardson that the Service "act quickly" to reverse its position. According to Archer, the ruling is a departure from long-standing IRS and airline industry tax accounting policies that have permitted the current deduction of such costs.

Archer's letter to the Service was followed by a letter to Treasury Department Secretary Robert Rubin signed by 31 members of the House Ways and Means Committee. The group stated in its letter to Rubin that "we are troubled by the IRS' change of policy without the benefit of legislation or rulemaking," Moreover, "If the IRS intends to implement a change of policy of this magnitude, we believe the change should be the subject of hearings of appropriate jurisdiction in the Congress."

The TAM addressed the tax treatment of Federal Aviation Administration-mandated aircraft safety inspection and repair costs. Under Regs. Sec. 1.162-4, "the cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life, but keep it in an ordinary efficient operating condition may be deducted as an expense...." The same regulation requires capitalization of costs for "repairs in the nature of replacements, to the extent that they arrest depreciation and appreciably prolong the life of the property..."...