Supplemental comments on the proposed "Tangibles Regulations".

On June 19, 2007, TEI President David L. Bernard submitted a letter to Assistant Treasury Secretary for Tax Policy Eric Solomon providing supplemental comments on the proposed regulations relating to the treatment of expenditures for tangible property and repairs. The letter responds to a Treasury Department request for comments on whether a taxpayer's Applicable Financial Statement (or "book") life is appropriate for measuring whether an acquired or produced unit of property has a life of 12 months or less--and thus qualifies for an immediate deduction--or has a life in excess of 12 months and should be capitalized and depreciated or amortized for tax purposes. TEI's comments were prepared under the aegis of TEI's Federal Tax Committee whose chair is Susan A. Bauer of Moore Investment Group. Contributing substantially to the development of TEI's comments was Carita R. Twinem of Briggs & Stratton Corporation.

During Tax Executives Institute's 2007 liaison meeting with the Treasury's Office of Tax Policy, we discussed the proposed tangibles regulations (REG-168745-03). It was noted that commentators, including TEI, uniformly disagreed with the proposed regulations' equating the economic useful life of an asset with the taxpayer's Applicable Financial Statement (AFS) (1) or "book" life for purposes of determining whether an expenditure should be capitalized as a restoration. It was also noted that few comments were submitted on the proposed regulations' use of the AFS life rule in connection with the proposed 12-month rule of Prop. Reg. [section] 1.263(a)-2(d)(4). The Treasury Department invited TEI's comments on whether a taxpayer's AFS life is appropriate for measuring whether an acquired or produced unit of property has a life of 12 months or less -and thus qualifies for an immediate deduction --or has a life in excess of 12 months and should be capitalized and depreciated or amortized for tax purposes.

Tax Executives Institute is the preeminent global association of business tax professionals with our 7,000 members representing 3,000 of the leading companies in the United States, Canada, Europe, and Asia. On behalf of TEI, I am pleased to submit the following additional comments on the proposed tangibles regulations.

The current regulations under sections 263(a), 446, and 461 require taxpayers to capitalize amounts paid to acquire property having a useful life substantially beyond the taxable year. Some courts have adopted a 12-month rule...