Determination 9952010: Proposed increase in asset capitalization threshold denied

Plain-English summary

A taxpayer filed Form 3115 seeking to raise its minimum capitalization threshold for machinery, equipment, furniture, and fixtures from $1,000 to $2,000. The IRS denied the requested accounting method change. The attached letter also said the taxpayer's existing practice of expensing assets solely because they cost $1,000 or less was not an acceptable method. It stated that business property with a useful life exceeding one year, apart from land or inventory, had to be capitalized and depreciated under the rules applied in this 1999 determination. The release includes both the denial letter and a memorandum notifying the district office.

Ruling snapshot

• Question: Could the taxpayer increase its stated minimum capitalization limit from $1,000 to $2,000?
• Outcome: Denied; the IRS also rejected the existing cost-based threshold.
• Key authorities: IRC §§ 167, 446; Rev. Proc. 99-1, § 8.07(2)(a).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
I N T E R N AL R E V E N U E S E R V I C E WASHINGTON, D.C. 20224

September 29, 1999
Number: 199952010
Release Date: 12/30/1999
UIL: 167.00-00
CC:DOM:P&SI:6-
446.00-00
CAM-38724-91

MEMORANDUM FOR District Director,
District
Attn: Chief, Examination Division

FROM: Chief, CC:DOM:P&SI:6

SUBJECT: Denial of Request for Change in Accounting Method

In accordance with section 8.07(2)(a) of Rev. Proc. 99-1, I.R.B. 6, 34, this memorandum advises you we have denied a request for a change of accounting from a taxpayer within your district.

See the attached letter to the taxpayer.

If you have any questions on this matter, please call at

Sincerely yours,

/s/ Charles B. Ramsey

Charles B. Ramsey
Chief, Branch 6
Office of Assistant Chief Counsel
(Passthroughs and Special
Industries)

cc:
Changes in Methods of Accounting
Industry Specialist
Index Numbers: 167.00-000
446.00-000

CC:DOM:P&SI:6--CAM-38724-91

September 29, 1999

In re:

Request for Change in Accounting Method

Subsidiary 1:

Subsidiary 2:

Subsidiary 3:

Subsidiary 4:

Subsidiary 5:

Subsidiary 6:

Dear

This letter is in response to a Form 3115, Application for Change in Accounting Method, dated September 26, 1991. In its application, the taxpayer has
CAM-39724-91
2

requested permission to change its method of accounting for assets such as machinery, equipment, furniture, and fixtures. The taxpayer’s present method is to not capitalize and depreciate such assets valued at $1,000 or less. The taxpayer requests permission to change its method of accounting by increasing the minimum from $1,000 to $2,000.

The request to change from a minimum capitalization limit of $1,000 to $2,000 is denied. The taxpayer’s current method of not capitalizing assets valued at a certain amount or less is not an acceptable method of accounting. All property used in a trade or business (except land or inventory) that has a useful life of more than one year must be capitalized and depreciated. Taxpayers are not permitted to treat such items as current expenses simply because the particular item has a certain minimum value or less.

We are sending a copy of this letter to the District Director, District. If you have any additional questions, please contact at
Sincerely yours,

/s/ C.B. Ramsey

Charles B. Ramsey
Chief, Branch 6
Office of Assistant Chief
Counsel
(Passthroughs and Special
Industries)