Hot off the Presses: IRS Releases New Audit Technique Guideline Focusing on Tangible Property

On September 14th the IRS issued an Audit Techniques Guide (ATG) entitled “Capitalization of Tangible Property.” ATGs are market-specific, and are intended to develop highly trained auditors who are subject matter experts. ATGs feature industry terminology, discussion of unique issues, and best practice guidelines. They also outline the type of documentation that should be available, and spell out specific techniques a successful auditor may employ to obtain the information he requires. This process has resulted in increased IRS efficiency and consistency in audits.

In addition to providing direction for IRS staff, this new ATG will be an invaluable resource for US taxpayers and their supporting consultants. The document directs readers to the primary areas that will be examined by IRS field agents. It also catalogues the expected documentation required to support the application of the complex Tangible Property Regulations (TPRs). This is a welcome document and it may lend more clarity to some of the aspects of the TPRs that remain nebulous.

The release of this new ATG is a major development, and may have a significant impact on how capitalization decisions are made and documented. Initial review of the ATG indicates an emphasis on the importance of engineering-based cost segregation studies and the BAR Test. The Capstan Tax team is hard at work on a thorough analysis of the ATG that we’ll be sharing as soon as possible. If you have specific questions, give us a call, and in the meantime watch this space for a critical review of the new ATG and an assessment of its long-term significance. More to come…