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The new “repair regulations”—a highlights tour

December 23, 2011 | No. 2011-635


Today, the Treasury Department and IRS released the long-awaited “repair regulations” for publication in the Federal Register. These regulations, T.D. 9564 and REG-168745-03, contain the standards for determining whether and when a taxpayer must capitalize costs incurred in acquiring, maintaining, or improving any tangible property. The regulations are likely to affect all taxpayers in one way or another.

Issued in proposed and temporary form, the regulations are generally effective for tax years beginning on or after January 1, 2012, and provide for a notice and comment period before the regulations are finalized. Because the temporary regulations have the same binding effect as a final regulation, taxpayers must take steps to determine that they fully benefit from and comply with the regulations for their 2012 tax year. Changes to comply with the regulations are a change in method of accounting that will generally require a section 481(a) adjustment. The IRS is expected to issue more detailed guidance in the near future regarding the implementation of these changes.

Although the regulations follow the same overall format as earlier proposed regulations issued in 2006 and 2008, the temporary regulations also contain a number of significant changes of which taxpayers need to be aware. The highlights include:

  • Significant modifications in how the capitalization standards apply to buildings and structural components
  • Significant changes in the deductibility of unrecovered costs of structural components following the improvement or retirement of those elements
  • New definitions and rules applicable to “materials and supplies”
  • Revised de minimis rules
  • Clarifications in the application of the capitalization standards to “store remodels”

For a printable version of an initial KPMG report on today’s regulations: The new “repair regulations”—a highlights tour

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The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

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