United States

IRS releases its Audit Technique Guide for examining tangible property


On Sept. 16, 2016, the IRS released its Audit Technique Guide (ATG) for use by its agents in examining taxpayers’ treatment for tangible property, repair and maintenance expenditures, and capital improvements. Generally, the IRS ATGs provide examiners with useful insights on a particular topic and describe what to look for during exam—a playbook of sorts. Therefore, while these ATGs are not rules that taxpayers must follow, they do provide insight in how the IRS will examine the issues and possible arguments in applying and interpreting the regulations.

This most recent IRS ATG contains 18 chapters that cover the various aspects of the final tangible property regulations issued in September 2013. Its release effectively opens the gates for exam activity in this area, which had previously been suspended back in March 2012. The ATG begins by charging taxpayers with the burden of proving that they are in compliance with the regulations for tax years beginning on or after Jan. 1, 2014.

RSM US will release a more exhaustive examination of the ATG in the near future. However, as a preview for what is to come, in addition to detailing the tangible property regulations, the ATG also discusses other considerations such as the effect of the tangible property regulations on other code sections, including the domestic production activities deduction (section 199) and the uniform capitalization rules for self-constructed property and inventory (section 263A). The ATG also addresses issues around implementation, such as if the final regulations were adopted, whether a capitalization to repair study was conducted, and whether the necessary adjustments were properly computed and reported.


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