The Internal Revenue Service has issued a revenue procedure that describes several safe harbor methods of accounting for certain property costs paid or incurred by cable system operators.
Revenue Procedure 2015-12 includes guidance that cable operators can use to determine whether expenditures to maintain, replace or improve cable system network assets can be deducted.
The revenue procedure provides two alternative safe harbor approaches for determining whether expenditures to maintain, replace or improve cable network assets must be capitalized under Section 263(a) of the Tax Code: a “network asset maintenance allowance” method and a “units of property” method.
In addition, the revenue procedure provides two alternative methods for determining whether costs for installations and customer drops may be deducted as repairs under Section 162 or must be capitalized as improvements under Section 263(a): a “specific identification” method and a safe harbor method.
The revenue procedure allows a taxpayer to treat a fiber optic transfer node and trunk line consisting of fiber optic cable used in a cable distribution system as the asset for depreciation purposes. The revenue procedure also provides a safe harbor method for determining whether all cable distribution network assets are primarily used for providing one-way or two-way communication services.
Finally, the revenue procedure provides procedures for a qualifying taxpayer to obtain automatic consent from the IRS to change to the safe harbor methods of accounting provided in the revenue procedure.
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