The Internal Revenue Service has released a list of industry-specific issues that its auditors may consider when examining a business's returns.
The list of so-called "Tier III issues" relates to industries ranging from cable TV providers to car dealerships, insurers and airlines. One issue deals with real estate mortgage investment conduits. The IRS is looking into the issue of REMIC sponsors' understatement of reportable gain on the retention and sale of regular interests. The agency will be reviewing the economic models and assumptions used by the sponsors to value residual interests in order to determine if the fair market value and basis allocations are appropriate.
The IRS is also looking at cost segregation studies of whether an asset is Section 1250 property (which generally has a 39-year recovery period) or Section 1245 property (generally a five- or seven-year recovery period). The IRS said there has been an increase in claims reclassifying Section 1250 property as Section 1245 property. The issue affects various industries, including retail, restaurants, biotech and pharmaceuticals.
For the TV industry, "fees for the rights to broadcast sporting events are among the biggest costs of television broadcasters and cable channel operators, running to the billions of dollars for the largest taxpayers," the IRS noted. "Many broadcasters and cable channel providers accrue their license fee liabilities upon the execution of the broadcast rights contracts and amortize the fees over the three-to-five-year term of the contract." The IRS takes the position that the taxpayer's accruals at the time of the contract execution are premature and that fees may only be accrued as the games are played.
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