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Actual for You - Summary Regulatory History of Cost Segregation
The primary requirement of a business is capital. Once you have adequate capital you can start your business easily. Even if your business is an old one you may fall in the need of funds for necessary requirements. And when you need money, you go for a loan. But, what kind of loan is the question to be contemplated.If you have a house you can easily avail a secured business loan against it. But, in case you don’t possess a house it becomes a bit difficult for you to take a cheap loan for your business. Moreover, you can’t raise huge amount of money with an unsecured loan. But you do not need to take much stress as there are a number of creditors who provide unsecured business loans.Unsecured business loans are those loans that are specifically meant to fulfill your business requirements. These loans are unsecured; therefore there is no need of collateral. The creditor provides such loans only on the guarantee of your repayment capacity. So, the creditor takes greater risk in providing such loans whereas the borrower is at low risk in the case.The interest rates charged on an unsecured loan are kept high. The monthly installments are also bigger and the repayment duration is also shorter compared to secured loans. But, there a few benefits attached to an UNSECURED BUSINESS LOAN. The major advantage is that you are free from the risk of repossession of your house in case of non payment of loan amount. Secondly, you do not have to go through the hassles of valuation of property and voluminous paper work attached with it. Because of this reason your loan is sanctioned very fast. This kind of loan is very suitable for tenants and those entrepreneurs who live with their parents.An unsecured business loan can be used for various business purposes. You can buy buildings, apartments, office equipments, stationary items, electronic gadgets like computers etc. If you want to expand your business you can avail such a loan to fulfill your financial requirements.A number of finance companies provide unsecured business loans these days. Y
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for pr
So everybody's bloggin', but what makes one web marketer's blog a hotbed of marketer activity and massive sale converter... while another blog just sits there collecting hits but getting no real business? Check the Five Bloggin' Bloopers that will kill your credibility and drive business right into the other guy's lap... then avoid them like the plague!Blog Blooper 1. Not branding yourself.How will people who land on your blog via the links and search engine results know who you are unless you tell them? Try to close every blog entry you write with a signoff or call-to-action. Example: "Need a copywriter? Email dina@wordfeeder.com." This way, no matter what your fans are reading, they'll be reminded of you, your website and what you can offer them.Blog Blooper 2. Sharing too much personal information.If you're blogging for business, stick to business. Sure, it's okay to reveal a few amusing details now and then... but if you gab too much on your blog, all you'll succeed in doing is attract other gabbers. Remember your purpose in all this, and keep your topics closely geared fulfilling the business needs of your target audience.Blog Blooper 3. Too many links to competitor sites. Your fans will love you for sharing resources, and if you link to "friendly neighborhood service providers like yourself", this will endear those marketers to you and your blog and prompt reciprocal links back. However, be sure to choose your outbound links wisely. Select complimentary service providers... not ones who offer exactly what you do!Blog Blooper 4. Not enough "spice." Post an intriguing or controversial viewpoint, and your readers are more likely to jump into the conversation with posted comments. The more activity on your blog, the more people are "following along" as the plot develops, and the more repeat visitors you'll get. If everyone's flocking to your blog, that means better page rank for you. So please do "spice it up!"Blog Blooper 5. All "pickup articles," no personality.Hey, now there's a great way to develop your web style - o
When the actual cost of each individual component is available, this is a rather simple procedure. However, when only lump-sum costs are available, cost estimating techniques may be required to “segregate” or “allocate” costs to individual components of property (e.g., land, land improvements, buildings, equipment, furniture and fixtures, etc.). This type of analysis is generally called a “cost segregation study,” “cost segregation analysis,” or “cost allocation study.” Significant tax benefits may be derived from utilizing shorter recovery periods. The issues for Internal Revenue Service Examiners (Service Examiners) are 1) the rationale used to segregate property into its various components, and 2) the methods used to allocate the total project costs among these components.
The most common situation is the allocation or reallocation of building costs to tangible personal property. A building, termed "section (§) 1250 property", is generally 39-year property eligible for straight-line depreciation. Equipment, furniture and fixtures, termed "section (§) 1245 property", are tangible personal property. Tangible personal property has a short recovery period, thus, a faster depreciation write-off (and tax benefit).
Property allocations and reallocations are typically based on criteria established under the Investment Tax Credit (ITC). In a recent landmark decision, the Tax Court ruled that, to the extent tangible personal property is included in an acquisition or in overall costs, it should be treated as such for depreciation purposes. The court also decided that the rules for determining whether property qualifies as tangible personal property for purposes of ITC (under pre-1981 tax law) are also applicable to determining depreciation under current law. [See Hospital Corporation of America, 109 T.C. 21 (1997)] The Service acquiesced to the use of ITC rules for distinguishing § 1245 property from § 1250 property.
OVERVIEW
It is important to review the relevant legal history and the motivations of taxpayers to allocate costs to personal property. The legislative and judicial history of depreciation, depreciation recapture, and Investment Tax Credit (ITC) are closely related.
The Internal Revenue Code (IRC) has historically authorized depreciation as an allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or for the production of income (IRC Sec. 167 and the regulations thereunder.)
BULLETIN F
For example, IRS Publication Number 173 (also known as "Bulletin F") was published in 1942 and provided a useful life guide for various types of property based on the nature of a taxpayer's business or industry. Bulletin F identified over 5,000 assets used in 57 different industries and activities and described two procedures for computing depreciation for buildings: Composite Method: A depreciation chart provided a composite rate for buildings, including all installed building equipment.
Component Method: Taxpayers could elect to depreciate the building equipment separately from the structure itself.
COMPONENT DEPRECIATION
In 1959, the Tax Court recognized the right of taxpayers to calculate depreciation using a component method for newly constructed property [Shainberg vs. Commissioner, 33 T.C. 241 (1959)]. Revenue Procedure 62-21, 1962-2 C.B. 418, superceded Bulletin F and provided safe harbor useful lives based on industry-specific asset classes for taxpayers that met the reserve ratio test (a complex provision).
Revenue Ruling 66-111, 1966-1 C.B. 46 (subsequently modified by Revenue Ruling 73-410, 1973-2 C.B. 53), addressed the use of component depreciation for used real property, in light of the decision in Shainberg. The ruling concluded that “When a used building is acquired for a lump sum consideration, separate components are not bought; a unified structure is purchased… Accordingly, an overall useful life for the building must be determined on the basis of the building as a whole.” Revenue Ruling 68-4,1968-1 C.B. 77, concluded that the asset guideline classes outlined in Revenue Procedure 62-21 “…may only be used where all the assets of the guideline class (building shell and its components) are included in the same guideline class for which one overall composite life is used for computing depreciation.”
ASSET DEPRECIATION RANGE (ADR)
The elective ADR system, implemented by Revenue Procedure 72-10, 1972-1 C. B. 721, was developed for tangible assets placed in service after 1970. All tangible assets were placed in one of the more than 100 asset guideline classes (which generally corresponded to those set out in Rev. Proc. 62-21). The classes of assets were based on the business and industry of the taxpayer. In addition, each class of assets other than land improvements and buildings was given a range of years (called "asset depreciation range") that was about 20 percent above and below the class life.
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for pro
Are you making this mistake with your business web site? Too many business owners think of their site as simply an online brochure. They use it as a place to store their hours of operation and their service list. A different way has emerged for the small business owner.Add a business sales letter and your web site can be used as an effective marketing tool. Used in the right way, it will spear-head many successful marketing campaigns for you in the near future. Use these 18 tips to put your web site marketing campaign into over-drive with a sales letter:1. List the top ten to fifteen benefits of your product or service.Put your list in bullet form. Always focus more on your benefits than the features. Explain your benefits. Benefits are what move people to act. For example, "This air conditioner (your product/ebook) will save you time, effort, energy and money because of the built in features." It creates more value if you said, "Think of all the time, energy and money this air conditioner will provide you with it's lifetime guarantee," instead of "This air conditioner will last a lifetime."2. Write compelling copy.Draw your reader in like a big fish on a hook. Entice them to want to know more and more. It takes practice but use the copy that sold you as a template. Use benefits including the interactive and the enticing format.3. Add Testimonials.Most everyone wants to know who else has used your service and had a good experience. Testimonials speak up for your product or service. They act as a referral and even an endorsement. The compliments from another customer helps melt away your prospect's fears and doubts about buying from you online.4. Make your offer more than once.Give your prospects three to four chances to buy. Some may be ready to buy before they even get to your sales letter, so place "Buy Now" information at the top and sprinkle a few more buying opportunities along the way after your list of benefits, your guarantee, your summary of the book's features, and your testimonials.5. Add value to your sales pitch with bonus gifts.Make a list of bonus gifts. Select the bon
Property allocations and reallocations are typically based on criteria established under the Investment Tax Credit (ITC). In a recent landmark decision, the Tax Court ruled that, to the extent tangible personal property is included in an acquisition or in overall costs, it should be treated as such for depreciation purposes. The court also decided that the rules for determining whether property qualifies as tangible personal property for purposes of ITC (under pre-1981 tax law) are also applicable to determining depreciation under current law. [See Hospital Corporation of America, 109 T.C. 21 (1997)] The Service acquiesced to the use of ITC rules for distinguishing § 1245 property from § 1250 property.
OVERVIEW
It is important to review the relevant legal history and the motivations of taxpayers to allocate costs to personal property. The legislative and judicial history of depreciation, depreciation recapture, and Investment Tax Credit (ITC) are closely related.
The Internal Revenue Code (IRC) has historically authorized depreciation as an allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or for the production of income (IRC Sec. 167 and the regulations thereunder.)
BULLETIN F
For example, IRS Publication Number 173 (also known as "Bulletin F") was published in 1942 and provided a useful life guide for various types of property based on the nature of a taxpayer's business or industry. Bulletin F identified over 5,000 assets used in 57 different industries and activities and described two procedures for computing depreciation for buildings: Composite Method: A depreciation chart provided a composite rate for buildings, including all installed building equipment.
Component Method: Taxpayers could elect to depreciate the building equipment separately from the structure itself.
COMPONENT DEPRECIATION
In 1959, the Tax Court recognized the right of taxpayers to calculate depreciation using a component method for newly constructed property [Shainberg vs. Commissioner, 33 T.C. 241 (1959)]. Revenue Procedure 62-21, 1962-2 C.B. 418, superceded Bulletin F and provided safe harbor useful lives based on industry-specific asset classes for taxpayers that met the reserve ratio test (a complex provision).
Revenue Ruling 66-111, 1966-1 C.B. 46 (subsequently modified by Revenue Ruling 73-410, 1973-2 C.B. 53), addressed the use of component depreciation for used real property, in light of the decision in Shainberg. The ruling concluded that “When a used building is acquired for a lump sum consideration, separate components are not bought; a unified structure is purchased… Accordingly, an overall useful life for the building must be determined on the basis of the building as a whole.” Revenue Ruling 68-4,1968-1 C.B. 77, concluded that the asset guideline classes outlined in Revenue Procedure 62-21 “…may only be used where all the assets of the guideline class (building shell and its components) are included in the same guideline class for which one overall composite life is used for computing depreciation.”
ASSET DEPRECIATION RANGE (ADR)
The elective ADR system, implemented by Revenue Procedure 72-10, 1972-1 C. B. 721, was developed for tangible assets placed in service after 1970. All tangible assets were placed in one of the more than 100 asset guideline classes (which generally corresponded to those set out in Rev. Proc. 62-21). The classes of assets were based on the business and industry of the taxpayer. In addition, each class of assets other than land improvements and buildings was given a range of years (called "asset depreciation range") that was about 20 percent above and below the class life.
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for pr
About directories:A directory is simply a web site that contains a categorized listing of links from around the web. They aid surfers to locate the 'best' and most informative links for a particular category. For example a category may be called 'Home and Garden' and in this category there is list of links about home improvement and gardening. Directories consist of a collection of categories into which links are seperated. Categories can have sub-categories to make the division of links more specific.Directories are important tools in building link popularity and as a result help improve search engine ranking. They are an excellent source of inbound, one-way links, which are the most powerful types of links to help build link popularity.There are a multitude of varied directories on the web at present. They range from general directories that include categories for almost everything, to specific directories that contain categories to match specific area/s of interest e.g. web sites about fishing. It is helpful to get your web site listed in as many directories as possible as this will help you beat the competition in rankings.Getting your link listed varies between directories as each has their own different process. Some directories require a fee but most do not. A lot of directories offer a mixture between free and paid listing. When you pay to get your link listed in a directory it is normally added within a week and it is guaranteed to be added. On the flipside a directory offer a free listing can take anywhere from a week to several months to add your link, and also there is no guarantee that the link will be added.Some directories use other approaches to get your link listed. For example the Joeant directory http://www.joeant.com requires you to register as an editor in order to submit a link. The Zeal directory http://www.zeal.com also requires you to register as a member but first you must complete and pass a 20 question quiz to prove your worthiness.Directories to submit to:Getting listed in quality directories such as DMOZ or Yahoo can be more beneficial for your link popularity than a lot of links fr
The Internal Revenue Code (IRC) has historically authorized depreciation as an allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or for the production of income (IRC Sec. 167 and the regulations thereunder.)
BULLETIN F
For example, IRS Publication Number 173 (also known as "Bulletin F") was published in 1942 and provided a useful life guide for various types of property based on the nature of a taxpayer's business or industry. Bulletin F identified over 5,000 assets used in 57 different industries and activities and described two procedures for computing depreciation for buildings: Composite Method: A depreciation chart provided a composite rate for buildings, including all installed building equipment.
Component Method: Taxpayers could elect to depreciate the building equipment separately from the structure itself.
COMPONENT DEPRECIATION
In 1959, the Tax Court recognized the right of taxpayers to calculate depreciation using a component method for newly constructed property [Shainberg vs. Commissioner, 33 T.C. 241 (1959)]. Revenue Procedure 62-21, 1962-2 C.B. 418, superceded Bulletin F and provided safe harbor useful lives based on industry-specific asset classes for taxpayers that met the reserve ratio test (a complex provision).
Revenue Ruling 66-111, 1966-1 C.B. 46 (subsequently modified by Revenue Ruling 73-410, 1973-2 C.B. 53), addressed the use of component depreciation for used real property, in light of the decision in Shainberg. The ruling concluded that “When a used building is acquired for a lump sum consideration, separate components are not bought; a unified structure is purchased… Accordingly, an overall useful life for the building must be determined on the basis of the building as a whole.” Revenue Ruling 68-4,1968-1 C.B. 77, concluded that the asset guideline classes outlined in Revenue Procedure 62-21 “…may only be used where all the assets of the guideline class (building shell and its components) are included in the same guideline class for which one overall composite life is used for computing depreciation.”
ASSET DEPRECIATION RANGE (ADR)
The elective ADR system, implemented by Revenue Procedure 72-10, 1972-1 C. B. 721, was developed for tangible assets placed in service after 1970. All tangible assets were placed in one of the more than 100 asset guideline classes (which generally corresponded to those set out in Rev. Proc. 62-21). The classes of assets were based on the business and industry of the taxpayer. In addition, each class of assets other than land improvements and buildings was given a range of years (called "asset depreciation range") that was about 20 percent above and below the class life.
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for pr
A little history… Google Site Maps is a free service provided by Google. It was launched in early 2006. Google has since then listened to fellow web developers and internet gurus, adding a few more features in the recent few months. It's a great start to any Internet Marketing or Search Engine Optimization campaign.What you can do with it …. There are any things Google Site Maps can help you do. These things include: seeing errors in the crawler has when crawling your website, shows the keywords your website places at top along with the average place in the SERPs (Search Engine Results Page) where your listing appears, ability to see what links Google sees that are pointing to your website, page rank statistics, common keywords between your website and the links pointing to your website and other tools but these are the most important.Why Google Site Map is a website must have … It is a must have because it saves time and energy for you. And, who doesn't want to save time in this day and age? All you basically have to do is check one page per day to make sure all pages of your website are included in the index. With the sitemap tool, you can tell if the crawler is reporting errors. If it is you know you have work to do. You will need to fix theses errors.It is also the quickest and easiest way to get you pages in Google. Even if your website was launched yesterday. It also gives you a report on the last time Google accessed your homepage, the average pages crawled each day, the page with the highest page rank, the anchor text in your website's content compared to the anchor text in incoming links to your website.Researching for SEO ( Search Engine Optimization) purposes? Well you will probably want to know what keywords are working for you in Google and what ones aren't. With Site Maps it's as easily as turning on your computer. Log in and click on the 'statistics' tab and then click 'query stats'. This will show you a list of the top search queries and your position within those. It will also show you a list top search queries and ones in which the visitor clicks through to your website. Simply put
Revenue Ruling 66-111, 1966-1 C.B. 46 (subsequently modified by Revenue Ruling 73-410, 1973-2 C.B. 53), addressed the use of component depreciation for used real property, in light of the decision in Shainberg. The ruling concluded that “When a used building is acquired for a lump sum consideration, separate components are not bought; a unified structure is purchased… Accordingly, an overall useful life for the building must be determined on the basis of the building as a whole.” Revenue Ruling 68-4,1968-1 C.B. 77, concluded that the asset guideline classes outlined in Revenue Procedure 62-21 “…may only be used where all the assets of the guideline class (building shell and its components) are included in the same guideline class for which one overall composite life is used for computing depreciation.”
ASSET DEPRECIATION RANGE (ADR)
The elective ADR system, implemented by Revenue Procedure 72-10, 1972-1 C. B. 721, was developed for tangible assets placed in service after 1970. All tangible assets were placed in one of the more than 100 asset guideline classes (which generally corresponded to those set out in Rev. Proc. 62-21). The classes of assets were based on the business and industry of the taxpayer. In addition, each class of assets other than land improvements and buildings was given a range of years (called "asset depreciation range") that was about 20 percent above and below the class life.
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for pr
Many of you would have seen the report circulating the internet at the moment, claiming 'AdSense is dead'. Well, the truth of the matter is, AdSense IS dead for people who:build websites with no useful content - also known as 'garbage' sitescopy and use content that has been written by other people, and used numerous times previouslyRecent changes in the Google AdSense program has many online website owners and marketers seriously concerned. Many have seen their AdSense profits decline. For many the Google AdSense bubble has burst.Why? Several months ago, Google made some minor, albeit significant changes to the AdSense program. Advertisers can now choose between having their ads display in Google search, the Google content network, or both. Google search won and started to receive higher bids, while also converting better than content ads.The next step Google took was to crack down on useless, 'garbage' AdSense websites. We've all seen these sites before. They consist mainly of software generated articles, or re-hashed search engine links. In essence, these websites are totally useless as an information resource and are slowly getting squeezed out. Needless to say, this spelt disaster for internet marketers who ran websites of this nature - these are the people who are crying that AdSense is dead - when in actual fact, it is not!It has become more than obvious that the people who benefit from AdSense are those who build content-rich, original websites that people actually want to visit, enjoy visiting, and continue to visit.Does that sound a bit more promising and realistic? The reality of the situation is that AdSense is far from dead! I personally run several AdSense based websites that generate a significant revenue stream via AdSense advertising. Has there been a downturn in profits? Put simply - no.The key to running websites whose sole purpose is to create income from advertising with Google AdSense is having quality content. As mentioned previously, AdSense will not work for people who are looking for a way to 'get rich quick'. Sure it will take a little bit of time to produce a great
If the taxpayer did not elect the ADR system, Revenue Ruling 73-410, 1973-2 C.B. 53, clarified that a taxpayer may utilize the component method of depreciating used property if a qualified appraiser "…properly allocates the costs between non-depreciable land and depreciable building components as of the date of purchase."
ACCELERATED COST RECOVERY SYSTEM (ACRS)
Congress enacted IRC Sec. 168 I 1981. The ACRS was intended to provide a less complicated method for computing depreciation (known as “cost recovery” by eliminating salvage value and specifying recovery periods of various classes of assets. In contrast to the elective ADR system, ACRS was mandatory and provided only five (later six) recovery periods. ACRS also allowed for a faster write-off of assets than had been allowed under previous rules.
MODIFIED ACCELERATED COST RECOVERY SYSTEM (MACRS)
Significant modifications, generally less favorable to taxpayers, were made to ACRS by the Tax Reform ACT of 1986 (effective for property placed in service after December 31, 1986). Under the Modified Accelerated Cost Recovery System, the recovery period for buildings and structural components increased dramatically. Revenue Procedure 87-56, 1987-2 C.B. 674, provides the class lives and recovery periods for most MACRS assets. These determinations are based on the specific industry of a taxpayer and the specific activity for which the assets are used.
EXPENSING PROVISIONS AND BONUS DEPRECIATION
Another incentive for allocating costs to shorter-lived property is the expensing provision of IRC Sec. 179. By maximizing the costs allocable to tangible personal property, the taxpayer can not only get an immediate write-off under § 179, but also qualifies for a shorter recovery period under § 168. Also, the 30-percent additional first year bonus depreciation allowance pursuant to § 168(k), enacted by the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147), provides even further incentive for taxpayers to segregate property into shorter recovery periods. The Jobs and Growth Reconciliation Tax Act of 2003 recently increased the bonus depreciation under § 168(k) to 50 percent for certain qualifying property acquired after May 5, 2003, and placed in service before January 1, 2006. Section 1400L provides special rules for qualifying property used by a business in the New York Liberty Zone.
INVESTMENT TAX CREDIT - IRC § 48
In order to stimulate the economy, Congress enacted Code § 48 in 1962. The ITC was designed to encourage the modernization and expansion of productive facilities through the purchase of certain new or used assets for use in a trade or business. Over the years, many other changes were made to the rules, including reductions in the depreciable basis of property for which ITC was claimed, temporary suspensions, termination, reinstatement, and, ultimately, the general repeal of ITC in 1986.
TANGIBLE PERSONAL PROPERTY
Eligible ITC property is defined in former IRC § 48(a)(1) with reference to IRC § 38 (in fact, eligible property is often referred to as "section 38 property"). It included tangible personal property that was closely integrated into the taxpayer's trade or business. Land, buildings, structural components contained in or attached to buildings, and other inherently permanent structures, generally were not eligible for ITC.
SECTION 1245 AND SECTION 1250 PROPERTY
The benefits of the ITC were somewhat offset by the provisions of IRC Sec. 1245 and 1250, also enacted in 1962. These Code sections result in the conversion of capital gain to ordinary income on the disposition of a property, to the extent its basis has been reduced by an accelerated depreciation method. The definitions of property for purposes of Sec. 1245 and 1250 are very similar to that for ITC and make reference to the regulations under Sec. 48 and the definitions under Sec. 38 property. These interrelated Code sections and the regulations (38, 48, 1245 and 1250) provide the pertinent authority for determining eligibility for ITC.
The primary issue in cost segregation studies is the proper classification of assets as either § 1245 or § 1250 property. Accordingly, the ITC rules are critical in determining whether a taxpayer has classified property into the appropriate asset class.
INHERENT PERMANENCY TEST AND THE “WHITECO FACTORS”
Revenue Ruling 75-178, 1975-1 C.B.9 outlined several criteria to determine Sec. 1245 property classification. The classic pronouncement addressing inherent permanency was Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664, 672-673 (1975). The Tax Court, based on an analysis of judicial precedent, developed six questions designed to ascertain whether a particular asset qualifies as tangible personal property. The questions were referred to as the “Whiteco Factors.”
It should also be noted, however, that movability is not the only determinative factor in measuring inherent permanency. In L.L. Bean, Inc. v. Comm., T.C. Memo, 1997-175, aff’d, 145 F.3d 53 (1st Cir. 1998), it was determined that, even though the structure could be moved, it was designed to remain permanently in place. Thus, it was determined to be an inherently permanent structure.
REPEAL OF ITC AND COMPONENT DEPRECIATION
Due to the significant tax benefits derived from ITC-eligible property, the use of component depreciation proliferated during the 1970's and created problems not unlike those faced today by taxpayers, practitioners, and the Service regarding cost segregation studies. The problem became so pronounced during the late 1970’s that Congress disallowed component depreciation as a method of computing depreciation for buildings, simultaneously with the enactment of ACRS in the Economic Recovery Tax Act of 1981 (ERTA) [see IRC § 168(f)(1)]. In 1986, MACRS reiterated that the use of component depreciation was not allowable.
HOSPITAL CORPORATION OF AMERICA v. COMMISSIONER ("HCA") (1997)
A landmark decision, Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997)("HCA"), provided t
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