Rob Campbell, Employment Tax Credit Manager at KBKG, was recently appointed as the new Co-Chair for the Hollywood Chamber of Commerce Legislative Action Committee. Rob is to serve in this capacity with incumbent co-Chair Susan Cabral-Ebert of IATSE Local 706 and will also sit on the board for the Hollywood Chamber Political Action Committee. “The Chamber has been a great resource for me over the last two years. I’ve learned so much about my community just from participating in the committee,” says Campbell. “It’s a great bonus for KBKG to be able to work with the Hollywood Chamber of Commerce. It allows us to better assist our clients with the issues that affect them. In fact, much of the legislation discussed in these meetings is relevant to the work that our firm does; such as single-sales factor apportionment and Enterprise Zone tax credits.” 

The Hollywood Chamber of Commerce was formed in 1921 consisting of owners, managers, presidents and other key representatives. The Chamber’s main purpose is to enhance the City of Hollywood’s business growth and culture while maintaining the city. KBKG advocates the importance of giving back as well as building lasting relationships within the community. KBKG has several clients within the city of Hollywood and surrounding area, principally with restaurant, film and music production clients. By utilizing client feedback and needs, KBKG is able to provide turn-key services to its clients as well as assist with the Chamber to improve the community. The Hollywood Chamber of Commerce Foundation is an organization developed to provide financial and educational support to those in need. Some significant achievements that the Chamber has reached thus far consist of providing more than $250,000 in grants, constructing the infamous Hollywood Sign and the Walk of Fame.

To learn more about how the Hollywood Chamber of Commerce advocates the interests of businesses in the Hollywood community, please visit www.hollywoodchamber.net.

Facts: On May 3, 2012, Charles Boustany, Jr., Chairman of the House Committee on Ways and Means Subcommittee on Oversight, raised question as to whether the General Services Administration (GSA) is abusing the 179D Tax Deduction. Recent documentation insinuates that the GSA may be improperly requiring contractors to provide kickbacks in order to allocate 179D deductions to architects and designers responsible for designing GSA buildings.  This goes against the intent of Congress which was to solely reward contractors that were responsible for designing more energy efficient government-owned buildings. Due to these circumstances, Boustany sent out letters to 15 Federal departments and 2 agencies to inquire about potential for similar abuse.

For the full letter provided by the Ways and Means Committee: Click Here

Who Benefits From 179D Deductions:
The 179D is a federal tax deduction that rewards architects and designers who design energy efficient government-owned buildings. This legislation offers a tax deduction of up to $1.80/sf to those designing energy efficient improvements placed in service after January 1, 2006 but requires that representatives of the government determine the appropriate designer for allocating these valuable tax breaks.   Improvements that are eligible for the tax deduction include energy efficient HVAC systems, interior lighting, and a building’s envelope.  As such, architects and engineers that are designing these systems will have often have opportunities for tax breaks here.  

KBKG Observations:
This recent occurrence has exploited the General Services Administration (GSA) and made them a prime example showing how government agencies may be abusing taxpayer dollars.  Boustany criticized the potential kickbacks by stating, “The action by the GSA raises a number of serious questions about whether this particular tax deduction is being abused. Requiring a cash payment in exchange for a tax deduction is a kickback, pure and simple. We must ensure that this tax deduction is being used for its intended purpose and not being sold to line some government slush fund.”  

KBKG has observed other government agencies asking for kickbacks in exchange for an allocation of the tax deductions and agrees with the actions taken by the Subcommittee of Oversight.  This recent Congressional inquiry serves as a warning to all government entities attempting to acquire kickbacks of their own through the allocation of 179D deductions.

Author: CJ Aberin, CCSP

KBKG is now offering five new webinars. Earn your free CPE without leaving your home or office. Please visit our Webinar section for more details. KBKG.com/webinars/catalog

Accounting Today published an article today entitled “GSA Asked for Tax Break ‘Kickback’”.

“The General Services Administration is now coming under scrutiny for offering government contractors a tax deduction in exchange for giving the agency 19 percent of the money from the tax break. The agency is already under fire for the spending at a lavish employee conference in Las Vegas. The tax break involved making federal buildings more energy efficient. Section 179D of the Tax Code offers energy tax credits to building owners who install energy efficient lighting, heating and cooling systems.”

You can read the full article at:
» http://www.accountingtoday.com/news/GSA-Asked-Energy-Tax-Break-Kickback-62559-1.html

Author: Michael Cohn. “GSA Asked for Tax Break ‘Kickback’.” accountingtoday.com. 5/4/2012

The Journal of Accountancy recently published an article titled “Side effects of cost segregation.”
“Increased current cash flows and net-present-value savings from accelerated tax depreciation resulting from cost-segregation studies have been discussed in the JofA and other professional literature. But the initial cost-segregation decision can determine later tax side effects, both positive and negative. This article explores some of the tax benefits and drawbacks linked to the use of cost segregation that can materialize in subsequent periods.”

Larry Maples, CPA, DBA and Robert D. Hayes, CPA, PH.D. “”Side effects of cost segregation” journalofaccountancy.com. April 2012.
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On March 7, 2012, the Internal Revenue Service (IRS) released two Revenue Procedures 2012-19 and 2012-20 as guidance for taxpayers to make changes to accounting methods in regards to the temporary regulations, "Repair Regulations," which were released on December 23 of 2011. These two revenue procedures are effective for taxable years beginning on or after January 1, 2012 and can be used to retroactively claim any missed deductions before January 1, 2012.
» Read More on Temp Regs 263(a)
 
IRS PROCEDURE 2012-19
This procedure provides instruction for taxpayers to comply with the temporary regulations. For owners of real estate, the changes of interest include:

• Deducting repair and maintenance costs
• Deducting certain costs for investigating the acquisition of real estate
  (includes overhead and salaries)
• Capitalizing acquisition or production costs
• Capitalizing improvements to tangible property

 
Rev Proc 2012-19 modifies Rev Proc 2011-14 by adding new automatic method changes as provided in the Repair Regulations.
» Full Version – IRS Revenue Procedures 2012-19 (pdf)
 
IRS PROCEDURE 2012-20
For real estate owners, the changes of interest in this revenue procedure apply to taxpayers who want to adjust a method to comply with the new rules concerning:

• Dispositions of MACRS property
• Depreciation of Leasehold Improvements
  (you cannot amortize over the life of the lease)
• General asset accounts
• Changes in tax life for property depreciated under MACRS

 
Rev Proc 2012-20 also modifies adds new automatic changes to Rev Proc 2011-14.
» Full Version – IRS Revenue Procedures 2012-20 (pdf)
 
KBKG OBSERVATIONS:
Taxpayers that have conducted "repair studies" by relying on the 2008 proposed regulations will likely have to give back the benefit received from that study if the items in question do not comply with the new Repair Regulations issued on December 23, 2011. The only good news for those taxpayers is that the IRS is offering audit protection to anyone that voluntarily makes the appropriate changes.

Rev. Proc. 2012-20 now clarifies that you can go back as far as you want to claim deductions for retired structural components. This might be the area that provides the most significant opportunity to claim missed deductions. In the past, when a taxpayer renovated an existing building, the IRS’ position was that you could not write off the remaining basis of the structural components. This might include things like an old roof, HVAC units that were replaced, old lighting and so forth. For example, anyone that replaced a roof during a renovation is likely depreciating the new roof and the old roof. CPAs and taxpayers should review their depreciation schedules for this kind of opportunity.
» Read KBKG’s case study on the retirement of structural components

These new Revenue Procedures also simplify the process by allowing for two or more concurrent changes of accounting to be filed on one single Form 3115. Additionally, both Rev. Proc’s allow for the use of Statistical Sampling for certain changes as long as the Sampling plan follows the guidelines provided in Rev. Proc. 2011-42.

» Find out if you can qualify for a Repair/Asset Retirement Study

Gian P. Pazzia, CCSP and Principal at KBKG, Inc. works collectively with the American Society of Cost Segregation Professionals (ASCSP) to provide insights on current tax issues including ASCSP’s comments to the IRS on the Repair v. Capitalization Temp. Regs., ASCSP’s industry commentary on PECO Foods v. Commissioner and also ASCSP’s comments on the AmeriSouth tax court memo.

Gian serves as a Board Member of ASCSP and is also a Committee Co-Chair of the Technical Standards Committee. He can be reached by phone: 877.525.4462 x150 or email: gian@kbkg.com.

» Read More about ASCSP’s Commentary on the Repair v. Capitalization Temp Regs.
» Read More about ASCSP’s Commentary on PECO Foods v. Commissioner
» Read More about ASCSP’s Commentary on AmeriSouth TC Memo

On March 16, 2012 the Internal Revenue Service (IRS) issued a Large Business & Industry (LB&I) Directive for taxpayers directly relating to the temporary regulations “Repair Regulations”. The IRS states that “This directive applies to the exam activity relating to positions taken on original returns relating to the following issues.”

1. Whether costs incurred to maintain, replace, or improve tangible property must be capitalized under section 263(a), (see, e.g., Rev. Proc. 2011-14, Appendix section 3.06, Repair and maintenance costs (designated change number 144)); and,

2. Any correlative Issues involving the disposition of structural components of a building or dispositions of tangible depreciable assets (other than a building or its structural components), (see, e.g., Rev. Proc. 2011-14, Appendix sections 6.24 and 6.25 (designated change number 146 and 147, respectively)).
» Read more about LB&I Directive

Enterprise Zones have been developed by the California Trade & Commerce Agency in 1984 as a tax saving incentive for businesses designed to stimulate growth in designated areas. All active Enterprise Zones consist of boundaries that are constantly changing. The Anaheim Enterprise Zone Program includes several opportunities for businesses to take advantage of several tax credits and deductions offered by the state legislature. There are five different Enterprise Zone tax incentives which include the hiring tax credit, sales and use tax credit, business expense deduction and net interest deduction for lenders.

» More info about the Anaheim Enterprise Zone at KBKG

Gian Pazzia, CCSP, Principal has been invited to speak at the 2012 OSCPA Real Estate Conference. He’ll be giving and update on "Depreciation Updates & Temporary Regulations for Repairs vs. Capitalization." To attend the conference, please go to orcpa.org

» Learn more about cost segregation and repair & maintenance.