The American Institute of CPAs told the Internal Revenue Service that its proposed regulations for capitalization and deduction of tangible property expenditures are unnecessarily complex and burdensome.

Patricia Thompson

The IRS released the long-awaited “repair regs” last December, which affect a wide range industries (see IRS Issues Regulations on Tangible Property Repairs and New Repair Regulations Require Revised Strategies).

The AICPA has been concerned about the new regulations and sent a second comment letter Monday to the IRS, building on concerns in an initial comment letter on April 17, providing greater specificity in a number of areas (see AICPA Tells IRS Tangible Property Rules are Too Complex).

“The AICPA is concerned that the overall approach in the temporary regulations relies too heavily on a ‘facts and circumstances’ based approach and contains too few bright-line tests and safe harbors to alleviate administrative burden and complexity in the capitalization area,” wrote Patricia Thompson, who chairs the AICPA’s Tax Executive Committee, in the new comment letter.

Additional burdens would be imposed on taxpayers—particularly small businesses—without elimination of “the often controversial aspects of applying general capitalization principles,” Thompson noted.

For instance, the AICPA believes the IRS should provide illustrative examples to guide taxpayers on the interrelationship of some of the temporary regulations, particularly the disposition provisions, general asset account elections, and improvement provisions, Thompson wrote.

Providing one or two examples would “enable taxpayers to avoid unintentional missed elections in their efforts to comply with the regulations,” she said.

The letter provides new recommendations on the treatment of improvements, as well as materials and supplies, under the temporary regulations. The AICPA also expanded its previous comments on dispositions and GAA elections, method change guidance and acquisition costs. The AICPA believes the de minimis rule in the regulations, which requires an annual financial statement that meets the definition of an Applicable Financial Statement, discriminates against smaller taxpayers. While it proposes several fixes in this area, the AICPA also suggests an alternative to expand the definition to include a financial statement that has been reviewed by a CPA.