Tangible prop. regs: Final regs on tangible property expenditures.

• Author: Josephs, Stuart R.
• Position: FedTax - Property regulations

Final regulations (T.D. 9636) issued Sept. 13 regarding tangible property expenditures contain these significant provisions:

De Minimis Safe Harbor

Taxpayers with an applicable financial statement (AFS) can apply this safe harbor if the amount paid for property cloes not exceed $5,000 per invoice, or per item as substantiated by the invoice.

Taxpayers without an AFS can apply this safe harbor if the amount paid for property does not exceed $500 per invoice, or per item as substantiated by the invoice.

If the cost exceeds these $5,000 or $500 criteria, no portion of the Property's cost falls within this safe harbor.

Taxpayers with or without an AFS must:

* Have, at the beginning of the tax year, written accounting procedures treating as an expense for non-tax purposes amounts paid for property costing less than a specified dollar amount; and

* Treat the amount paid for the property as an expense on their AFS or book and records if there is no AFS) in accordance with these procedures.

Transaction Costs

For simplification. the final regulations provide that taxpayer electing to apply this safe harbor is not required to include in the cost of the tangible property the additional costs of acquiring or producing such property if these costs are not included in the same invoice as the tangible property. However. these regulations also provide that a taxpayer electing to apply this sale harbor must include in the cost or such property all additional costs (for example, delivery fees, installation services or similar costs) of acquiring or producing such property if these costs are included in the same invoice with the tangible property.

If an invoice includes amounts paid for multiple tangible properties and the invoice includes additional costs related to the multiple properties, the taxpayer must allocate these additional costs to each property using a reasonable method. The regulations specify that a reasonable allocation method includes, but is not limited to, specific identification, a pro rata allocation or a weighted average method based on each property's relative cost.

AFS

An AFS is the taxpayer's financial statement that has the highest priority. These statements are. in descending priority:

* A financial statement required to be filed with the SEC, such as the 10-K or the Annual Statement to Shareholders;

* A certified audited financial statement that is accompanied by the report of an independent CPA used for credit purposes; reporting...