Daily Tax Update - September 13, 2013: Treasury and the IRS Issue Final Regulations on the Deduction and Capitalization of Expenditures

Treasury and the IRS Issue Final Regulations on the Deduction and Capitalization of Expenditures Related to Tangible Property and Proposed Regulations on Dispositions of Tangible Property Subject to Depreciation:  Treasury and the IRS have issued final regulations (T.D. 9636), effective September 19, 2013, that provide guidance on the application of sections 162(a) and 263(a) to amounts paid to acquire, produce, or improve tangible property.  The final regulations replace and remove temporary regulations (T.D. 9564) under sections 162(a) and 263(a) and withdraw proposed regulations (REG-168745-03) that cross referenced the text of those temporary regulations.  Such temporary and proposed regulations were published in December 2011.  However, the final regulations do not finalize or remove the 2011 temporary regulations under section 168 regarding general asset accounts and disposition of property subject to section 168, which are the focus of new proposed regulations (REG-110732-13). 

  • The final regulations provide a general framework for distinguishing capital expenditures from supplies, repairs, maintenance, and other deductible business expenses and preserve many of the provisions of the 2011 temporary and proposed regulations.  Nevertheless, the final regulations also modify several sections of the 2011 regulations and create a number of new safe harbors. 
  • The new proposed regulations include many of the provisions contained in the 2011 regulations under section 168.  However, they also make significant changes to the rules relating to the determination of the asset disposed of and a qualifying disposition of an asset in a general asset account and create new rules for partial dispositions of assets. 
  • Treasury and the IRS plan to publish final regulations under section 168 later this year.  Thus, the proposed regulations generally are proposed to apply to taxable years beginning on or after January 1, 2014.
  • Comments on the proposed regulations are due by November 18, 2013, and a public hearing is scheduled for December 19, 2013. 

Miscellaneous Guidance Released:
Notice 2013-54 provides guidance on the application of the market reform provisions and other provisions of the Affordable Care Act to certain healthcare arrangements, including health reimbursement arrangements (HRAs), employer payment plans, and health flexible spending arrangements (health FSAs).  The notice also provides guidance on section 125(f)(3) of the Code and on employee assistance programs or EAPs.