Deduction & Capitalization
IRS Rule regarding Deduction and Capitalization of expenditures related to tangible property – The IRS is considering a rule that would require textile services companies to maintain an inventory of all goods including those valued at under $100, which means nearly all goods the industry rents. If this happens, our industry will be subject to onerous record keeping requirements that will drive up tax-compliance costs. We recently enlisted two members of Congress to help in this ongoing fight.
The Department of Treasury and the IRS are currently considering a final rule or new proposed rule on the Deduction and Capitalization of Expenditures Related to Tangible Property. The composition of the rule will have tremendous impact on companies. The industry processes more than six billion pounds of laundry at 1,500 facilities across the country. This translates into hundreds of thousands of items passing through those 1,500 facilities each day.
Most of those products rented and laundered are low-cost items. Typical examples include:
- Table Cloths
- Floor Mats
- Wash Cloths
- Shop Towels
If the new rule were to force companies to account for these items individually it would be an unwarranted, costly burden on textile services companies that by the necessity of their businesses must keep on-hand all these low-cost goods.
The IRS has previously addressed one of the industries concerns when they proposed a $100 De Minimis level in their March 10, 2008 Notice of Proposed Rulemaking (NPRM). Clarity of the tax code and compliance ease is of paramount importance to any business there for we respectfully request:
1. That the IRS retains the $100 De Minimis level set in the 2008 NPRM.
2. The elimination of the requirement that the allowed deductions be added to the total amount of 'materials and supplies' that are deducted in a tax year. Retaining this provision will undercut the value and intent of the IRS in creating the De Minimis safe harbor because businesses will have to track every low cost item to accurately complete their taxes.
3. Since many current sections of the tax code contain an inflation-adjustment provision, it seems only logical to include language that would allow the De Minimis level to track the Consumer Price Index (CPI). Without such language the IRS will have to undertake periodic rulemaking or the rule will not meet it original intentions.