Cost Segregation

Cost Segregation:

If you are in the process of buying or selling a company, you may want to review the recent tax case Peco Foods v. Commissioner, TC Memo 2012-18. This case dealt with a proposed reallocation of asset values by the purchaser from a broad classification and large dollar value allocation of asset types (e.g. 26 categories of class types) contained in the sales agreement, which was then followed by subsequent cost studies by the purchaser after closing. The subsequent cost segregation study allocated the 26 class groups into over 300 sub-asset groups; thus creating smaller, more specific groupings with shortened tax lives for depreciation purposes. The Tax Court ruled that the cost segregation study would be disregarded and the previously negotiated groupings contained in the sales agreement would be binding. This resulted in less annual depreciation deductions by the purchaser on the front end. What lesson is to be learned from this case? LOOK AT THE COST SEGREGATION STUDY PRIOR TO CLOSING, which should be followed by the negotiated acceptance by the buyer and seller to treat the study as acceptable by both sides and made part of the sales agreement . I would suggest, for example, that the 300 sub-asset groups be attached to Form 8594, which is an IRS form that reports the acquisition and sale by the respective parties in the year of sale. If you have questions, please contact Richard Bell, CPA 501.753.9700 or e-mail richard.bell@bellandcompany.net a link to a copy of the case is below.

Peco Foods V Commissioner Case

IRS New Proposed Regs on Capitalization

The IRS has issued new proposed regs on capitalization vs. expensing of materials and supplies. I usually think about pens or pencils, paper, etc, as supplies and never considered a computer meeting the definition of materials and supplies, but computers are used as an example to explain one section of the proposed regs.  The de minimis rule exception for capitalization can now apply to computer equipment.  IIf you file a timely election on your tax return for 2012 and thereafter, and if you have a written policy in place for expensing such computer items under a certain dollar amount, for example- $500 per unit, then you may deduct the total purchase of computers for the year that meet your policy guideline of $500 or less per unit times the number of units purchased.  This is subject to the upper limit of .1% times the gross sales of the business, or 2% of the total amount of depreciation and amortization claimed.    For additional information, give Kelly Phillips, Pancho Espejo, or myself a call.

501.753.9700  Richard Bell, CPA

1099s

The deadline for providing 1099’s to recipients is on January 31, we wanted to make you aware of some new questions that you have to answer on your tax returns.  The IRS wants to make sure that you are following the rules on providing 1099’s to those who meet the reporting threshold.  If you pay a non incorporated service provider at least $600 during the calendar year in the course of your business or farm activity, you are required to report those payments to them on a Form 1099.  Attorneys are a special category of vendors, in that you are required to send them a 1099 for all payments.

The IRS is asking if you have made payments to a service provider that would require a Form 1099 to be filed.  If you answer this question yes, they ask if you have filed the Form 1099 or are going to do so.  If you have questions on 1099’s please give Jeff Lovelady a call 501.753.9700 or e-mail jeff.lovelady@bellandcompany.net.

Handheld Mobile Phone Ban for Drivers

Effective January 3, 2012, the Federal Motor Carier Saftety Regulations will prohibit commerical drivers from using hand-held mobile phones while operating a truck.

Original Transportation Law Alert sent on December 15, 2011

Effective January 3, 2012, the Federal Motor Carrier Safety Regulations will prohibit commercial drivers from using hand-held mobile phones while operating a commercial truck or bus. Violations of the rule can result in fines of up to $2,750 to drivers and $11,000 to motor carriers. Habitually offending drivers of this new rule can be disqualified from operating a CMV. This ban can also create additional hurdles for accident liability claims.

As trucking company owners and drivers what are your thoughts on this new rule?