Tax Cases and Revenue Procedures

Hospital Corp of America v. Commissioner, 109 T.C 21 (1997)

Landmark decision – Ruled that property qualifying as tangible personal property under the former Investment Tax Credit (ITC) rules would also qualify for purposes of federal income tax depreciation.

IRS Legal Memorandum 199921045

Advised its agents that the IRS would not fight the Hospital Corp. of America Tax Court decision. Additionally, this legal memorandum directs agents to verify that an engineering or architectural study has been completed to identify that portion of the building's systems not related to the operation and maintenance of the building. Without these studies, agents are advised not to accept the reclassifications.

Reg. 1.446-1(e)(2)(ii)(d)

An adjustment in the useful life of a depreciable asset is not a change in accounting method. (Form 3115 must still be filed to show that a change in accounting procedures has been made)

Revenue Procedure 2002-9

See Revenue Procedure 2002-19.

Revenue Procedure 2002-19

Modification to 2002-9. Allows taxpayers who did not previously use a cost segregation study to conduct one in the current year for a building placed in service in an earlier year. Also allows any negative Sec. 481(a) adjustment to be taken into account in a single year.

IRS Publications

Audit Techniques Guide
IRS Audit Techniques Guide for Cost Segregation

Tax Law Changes

American Job Creation Act of 2004
The American Job Creation Act of 2004 has changed the recovery period of qualified leasehold improvements and certain restaurant expenditures from 39 to 15 years, using straight line depreciation. The property must meet certain criteria to be eligible for the 15 year recovery period, such as being placed in service prior to January 1, 2006.