Receivership depreciation deductible as an administrative expense

Plain-English summary

Chief Counsel advised that depreciation on commercial real estate held by a receivership was deductible in calculating the modified gross income of a designated settlement fund. The depreciation was treated as a necessary administrative or incidental expense because the receiver had to administer, preserve, and realize assets for defrauded investors and distribute the net recoveries. The advice applied the treatment described in Treas. Reg. § 1.468B-2(b)(2).

Ruling snapshot

• Question: Could depreciation on receivership real estate be deducted as an administrative expense of a designated settlement fund?
• Outcome: Advice given, depreciation deductible
• Key authorities: IRC § 468B; Treas. Reg. § 1.468B-2(b)(2); CCA 201347019

Full text (IRS public release)

ID: CCA_2014021213202309
UILC: 468B.00-00, 468B.02-00,
468B.07-00
Number: 201411027
Release Date: 3/14/2014
From:
Sent: Wednesday, February 12, 2014 1:20:24 PM
To:
Cc:
Bcc:
Subject: Deductibility of Depreciation

Relating to our prior advice in CCA 201347019 dated August 7, 2013, you ask about the treatment of depreciation under § 1.468B-2(b)(2). Under the circumstances of this case as detailed in the CCA and similar to the expenses at issue in that advice, the depreciation expense relating to the commercial real estate properties held by the Receivership is a necessary expense incidental to the purposes of Receivership; namely, the administration, preservation and realization of the assets the Receiver was ordered to take control of for the benefit of the defrauded investors and distribution of the net recovered amounts to those investors. Thus, the depreciation expense is an administrative cost or other incidental expense that is deductible in calculating modified gross income under § 1.468B-2(b)(2).