Betterment/Adaptation/Restoration (BAR) Test
Capstan understands the complexity inherent in the Tangible Property Regulations (TPR) and the subsequent difficulties that may arise when determining if capital projects meet the IRS definitions of Betterment, Adaptation, or Restoration.
Capstan consultants help clients by reviewing project information and using the BAR and subsequent Materiality testing to determine if assets should be capitalized or expensed. The goal is to create a defensible position for capitalization/expensing decisions. If wrong decisions are made, the IRS, during an audit, will define the value of disposition for the asset(s) replaced during the subject scope of work.
Expense Policy Test (EPT) for Routine Maintenance Safe Harbor (RMSH), De Minimis, and Small Business Safe Harbor (SBSH)
Capstan works with clients to maximize the expensing of assets using the Expense Policy Test (EPT). Capstan reviews the scope of work by comparing spend to the client’s current expense policy (RMSH/De Minimis/SBSH) per the IRS Tangible Property Regulations and determines if the spend meets the definitions. Recommendations are made as to which items should be expensed versus capitalized.
Partial Asset Disposition (PAD) Analysis
The IRS has formally approved the ability to dispose of the remaining cost basis of assets previously retired, replaced, or demolished. This is outlined in the Tangible Property Regulations (IRC §1.168 (i)-8) and can be a tremendous vehicle for tax savings.
The Capstan process includes a review of the existing depreciation schedules, demolition drawings, and other pertinent information. The team also assesses the scope of recently completed capital work to determine the potential for disposition. When this review identifies assets ripe for disposition—but does not warrant a Standard Cost Segregation Study—Capstan suggests our Partial Asset Disposition (PAD) Analysis.
As defined in the Tangible Property Regulations, a PAD Analysis may be conducted in one of three ways:
- A full engineering-based cost methodology, such as cost segregation
- A pro rata pricing process (if original pricing for a property is available)
- A Producer Price Index calculation as outlined in the Tangible Property Regulations
The outcome of a Capstan PAD Analysis is a report that quantifies and presents the value of dispositions, outlines when the assets were placed into and taken out of service, and describes the asset(s) in question. With this information, the client may determine the remaining depreciable basis to support a Partial Asset Disposition election.
A PAD Analysis can also be used to update existing Unit of Property values.
As with most all strategies identified in the Tangible Property Regulations, the benefit of this effort is determined by each project’s facts and circumstances. The personal attention each client receives in the “Consult” phase of The Capstan Course will ensure that our team fully understands your unique situation.