Press Room: Tax Release

January 02, 2013

New Tax Regulations Offer Opportunities

IRS has announced that final tangible property regulations under Sec. 263(a), also known as “the repair regulations,” will be issued in early 2013, with an implementation window of 2012, 2013 or 2014. Taxpayers will have the opportunity to choose when and how to implement these regulations. Making the best choices may save tax dollars and taxpayer effort. 

Many taxpayers are affected in some way by these new regulations. Most of the effect of the regulations is a result of the catch-up adjustment to implement the provisions for expenditures in prior years. If this adjustment is favorable, it is reflected in full in the year of change. Depending on a taxpayer’s facts, this adjustment can be significant. In the context of an environment where tax rates may go up on some taxpayers and down on others, the right choice of the implementation year has the potential to produce permanent tax savings.  

Federal tax rates for individuals have changed for 2013. Because taxpayers will be able to choose whether to implement the new regulations in tax years beginning in 2012, 2013 or 2014 (or to implement some portion of the regulations in one year and other portions in other years), all taxpayers will want to consider the year(s) in which implementation of the rules will be of greatest tax benefit. 

Several caveats are in order –

  • While the flexible timetable for implementing the regulations allows taxpayers more time to analyze their specific tax situations, those taxpayers expecting lower tax rates after 2012 will want to be prepared to implement the new regulations on their 2012 tax returns.
  • To avoid the confusion of implementing more than one version of the regulations and to take advantage of expected simplifying conventions, taxpayers should consider the option of adopting the final regulations without first conforming to the temporary regulations.
  • Inaction carries with it several potential pitfalls: inadvertent binding elections to capitalize materials and supplies, inability to use de minimis rules if certain policies are not in place, loss of catch-up adjustments if regulations are not implemented timely, and loss of favorable general asset account provisions.

Taxpayers should consider now what approach to the implementation of the new regulations would provide the greatest tax savings while allowing for manageable future compliance.