Discussion:Off-site improvements vs. Impact fees
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| Revision as of 14:17, 26 March 2008 Matt (Talk | contribs) (Thank you Tax St) ← Previous diff |
Revision as of 19:08, 26 March 2008 Taxstudent (Talk | contribs) (In Rev Rul 2002-) Next diff → |
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| {{ForumReplyPost|UserID=Matt|Date=26 March 2008|Text=Thank you Tax Student for the citation and insight; it's helpful. Thank you RoyDaleOne for the insight. IRS in 2002-9 relys upon 263A for the proposition that impact fees should be capiatlized into the remaining project. I guess, if you can qualify off-site improvements as indirect costs like impact fees and therefore add to the basis of some other part of the project that would be depreciable you get where you want to be - depreciating these costs. My clients costs exceed 15 million dollars. Would you suggest disclosing that you are taking this position on the return so as to avoid underpayment penalties?}} | {{ForumReplyPost|UserID=Matt|Date=26 March 2008|Text=Thank you Tax Student for the citation and insight; it's helpful. Thank you RoyDaleOne for the insight. IRS in 2002-9 relys upon 263A for the proposition that impact fees should be capiatlized into the remaining project. I guess, if you can qualify off-site improvements as indirect costs like impact fees and therefore add to the basis of some other part of the project that would be depreciable you get where you want to be - depreciating these costs. My clients costs exceed 15 million dollars. Would you suggest disclosing that you are taking this position on the return so as to avoid underpayment penalties?}} | ||
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| + | {{ForumReplyPost|UserID=Taxstudent|Date=26 March 2008|Text=In Rev Rul 2002-9, the determinative fact was that the impact fee was assessed because the taxpayer constructed the new building, not because they merely improved the land in a way subject to section 263A. Thus, under the F&C, the indirect is allocated wholly to the building. If they have $15 million in offsite costs, I'm surprised they haven't hired a cost segregation firm to handle these issues. | ||
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| + | Given the right facts, I wouldn't disclose. }} | ||
Revision as of 19:08, 26 March 2008
Discussion Forum Index --> Advanced Tax Questions --> Off-site improvements vs. Impact fees
Discussion Forum Index --> Tax Questions --> Off-site improvements vs. Impact fees
| 24 March 2008 | |
| In a PLR (1999) IRS took position that infrastructure items constructed by developer and later dedicated to government entity were "intangible assets" with indefinite useful lives and thus not depreciable. Rev Ruling 2002-9 seems to indicate that impact fees paid by a developer to a govermental entity can be added to basis and therefore depreciated. What is the difference? Does anyone know if the IRS is currently allowing developers who construct roads etc that are later dedicated to the municipality (vs. paying a fee) to add these costs to basis and depreciate?
Thanks, | |
| 24 March 2008 | |
| There are two distinct elements. Infrastructure elements such as roads and sewer lines are not intangible assests and are depreciated. Intangibles are also depreciated under section 197(max 15 years). | |
RoyDaleOne (talk|edits) said: | 24 March 2008 |
| Can you explain how you are depreciating roads in a development?
Rentals? | |
| 25 March 2008 | |
| Yes, shopping center. Seems to me that the issue must come up frequently. Developers are routinely asked anymore to fund infrastructure improvements like roads, traffic signals, even schools and parks, not to mention water and sewer upgrades. These costs are either paid through impact fees or by having the developer construct the improvements and then dedicate them to the local government which then takes on the maintenace and repair functions. The question is how are those costs treated for tax purposes. Can a developer allocate the infrastructure costs to basis (263(a),263A) and recover through sales (less gain) or in the case of a shopping center or other rental sitaution, depreciate? In the 99 PLR IRS stated that if developer built roads that were later dedicated to local government, the "costs" were an intangible asset with no determinable useful life (because government maintained) and were therefore non-depreciable. In Rev Ruling 2002-9 the IRS says impact fees are capitalized costs allocable to the buildings under 263(a) and 263A and in the case of rental property, depreciable.
How do people treat these costs in practice? | |
RoyDaleOne (talk|edits) said: | 25 March 2008 |
| I allocate off site costs to on site construction. | |
| 25 March 2008 | |
| Thanks. Seems like the right result. You do this even when developer constructs and dedicates, notwithstanding the 99 PLR? | |
RoyDaleOne (talk|edits) said: | 25 March 2008 |
| Private letter rulings are non-binding, and I could (am not - to busy) to cite other directives requiring the allocation. As, I am sure you can.
A determinable life is no longer a requirement for depreciation when there is a class life. And, any discussion of determinable life relative to 263A in my way of thinking is well I'll be nice. The Service in 99 PLR IRS knows roads are depreciable so what are they doing? It makes no difference who maintains the road. | |
| 25 March 2008 | |
| Thanks, I'll let ou get back to work. I appreciate your help and insight. | |
Taxstudent (talk|edits) said: | 25 March 2008 |
| Reg. 1.263(a)-4(d)(8) addresses off-site improvements, though you still have to refer back to Rev. Rul. 2002-9 and other authorities. Offsite improvements dedicated to a government have generally been intangible costs in the case law since the 1940s I think. The reason they're intangible is not because they are not tangible property, but because the taxpayer transfers tax ownership to the government and no longer has a depreciable interest in the property. Without the depreciable interest, you're out of luck as far as depreciating them under MACRS, though they might come in as an indirect under section 263A, which may amount to the same thing. | |
RoyDaleOne (talk|edits) said: | 26 March 2008 |
| The point is that they have to be capitalized into the remaining project.
How can you depreciate something you don't own? You can't. | |
| 26 March 2008 | |
| Thank you Tax Student for the citation and insight; it's helpful. Thank you RoyDaleOne for the insight. IRS in 2002-9 relys upon 263A for the proposition that impact fees should be capiatlized into the remaining project. I guess, if you can qualify off-site improvements as indirect costs like impact fees and therefore add to the basis of some other part of the project that would be depreciable you get where you want to be - depreciating these costs. My clients costs exceed 15 million dollars. Would you suggest disclosing that you are taking this position on the return so as to avoid underpayment penalties? | |
Taxstudent (talk|edits) said: | 26 March 2008 |
| In Rev Rul 2002-9, the determinative fact was that the impact fee was assessed because the taxpayer constructed the new building, not because they merely improved the land in a way subject to section 263A. Thus, under the F&C, the indirect is allocated wholly to the building. If they have $15 million in offsite costs, I'm surprised they haven't hired a cost segregation firm to handle these issues.
Given the right facts, I wouldn't disclose. | |
