May 22, 2018
To All Corporate Tax Clients
New IRS Campaign with Respect to Interest Capitalization
The IRS announced yesterday a new campaign to be conducted by IRS examination teams to verify taxpayers’ compliance with the interest capitalization rules for self-constructed property in section 263A(f) of the Code.
We wanted to call to your attention the possibility that this campaign could lead to renewed interest on the part of the IRS in the need for taxpayers to follow the uniform capitalization (“UNICAP”) rules more generally in determining the cost basis of self-constructed property used in a trade or business, as well as with respect to the capitalization of interest. In addition, the recent changes in the repair regulations could also pose the issue of whether the cost basis of capitalized repairs is being properly calculated using the UNICAP provisions, including the capitalization of interest, where appropriate.
Let us know if you would be interested in assessing your company’s compliance with these rules. A company could head off any audit exposure in this area by filing an accounting method change request to correct any erroneous treatment of capitalized interest. This type of accounting method change request was recently made eligible for the automatic consent procedures.
If you would like to discuss this subject, please give us a call.
Ivins, Phillips & Barker