TEI comments on providing additional capitalization guidance: November 7, 2001.

On November 7, 2001, TEI President Robert L. Ashby submitted the following letter to Assistant Treasury Secretary for Tax Policy Mark A. Weinberger, IRS Commissioner Charles O. Rossotti, and Acting Chief Counsel Richard W. Skillman, urging the government to follow through on the Priority Guidance Plan and issue much-needed guidance on capitalization issues. The letter was prepared under the aegis of TEI's Federal Tax Committee, whose chair is Mitchell S. Trager of Georgia-Pacific Corporation.

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The Treasury Department's 2001 Priority Guidance Plan lists "guidance under sections 162 and 263 regarding the deduction and capitalization of expenditures" as a priority for the year. Tax Executives Institute concurs with the government's assessment that capitalization issues remain a high priority.

As the preeminent association of corporate tax executives in North America, Tax Executives Institute represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. Our members are responsible for managing the tax affairs of their companies and must daily deal with the Internal Re, venue Service (primarily, but not exclusively, the Large and Mid-Size Business Division) and with the provisions of the tax law that define whether a particular expenditure should be capitalized or deducted.

Taxpayers, the IRS, and courts, have long struggled with the distinctions between costs that are deductible when incurred and those 'that should be capitalized. Since the Supreme Court's decision in INDOPCO v. Commissioner, 503 U.S. 79 (1992), whether a particular expense may be deducted currently or must be capitalized has become a particularly troublesome issue. (1) While the National Office has consistently said that INDOPCO did not alter the fundamental principles of capitalization, (2) the decision has been cited by IRS agents to justify adjustments capitalizing numerous expenditures, many of which have long been viewed as clearly deductible. As a result, the number, scope, and frequency of disputes between taxpayers and the IRS over such issues have escalated substantially. Indeed, the National Taxpayer Advocate identified capitalization issues as the most litigated issue for business taxpayers in...