IRS tax deductions: Businesses catch a break

Patrick Temple-West
The IRS building in Washington, D.C.
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In a win for companies ranging from energy utilities to casinos, the U.S. Internal Revenue Service on Friday released new rules that broaden the kinds of business expenditures that can be treated as deductible asset repairs.

The difference between a deductible repair and a non-deductible improvement to "tangible property" has historically been a point of frequent dispute between the IRS and companies.

In more than 220 pages, the IRS has now finalized rules effective Jan. 1, 2014, making more costs deductible, including for instance, new laptop computers worth less than $5,000.

"Safe harbors have been expanded and clarified giving taxpayers that meet those safe harbors significant relief," said Brandon Carlton, an accountant with Big Four firm Ernst & Young.

Some corporate tax audits involving disputes with the IRS over the tax-deductibility of repairs have been in limbo pending the final rules. Now some audits can be resumed with the rules finalized, said Eric Lucas, a principal at KPMG LLP and a former Treasury Department tax counsel.

Companies including Alliant Energy, Boyd Gaming, Hyatt Hotels and NiSource earlier this year said their tax bills could change as a result of the final rules, according to their annual U.S. Securities and Exchange Commission filings.

"There has been a lot of controversy on this issue," Lucas said.

A spokesman for Alliant said on Friday the company is evaluating the final rules.

In 2005, FedEx successfully challenged the IRS over deducting the cost removing aircraft engines for repairs. The U.S. Court of Appeals for the Sixth Circuit affirmed that FedEx could deduct the engine repair costs and the package-delivery company was awarded a $66.5 million tax refund.

In addition to Friday's rules, the IRS has said it is separately working on repair rules for three specific industry sectors: cable networks, natural gas firms and retailers.

The IRS on Friday re-proposed some tangible property rules for further comment and set a public hearing for Dec. 19.