As much as we would all like to believe that this regulation will put an end to controversy in this area, our collective experiences in dealing with
capitalization issues suggests this may be overly optimistic.
TEI also commended Treasury for its efforts to provide timely and administrable guidance, citing the government's response to the September 11 attacks, the re-proposed research credit regulations, the notice on
capitalization issues, and, most recently, the notice on the Rite Aid decision (dealing with the loss disallowance rules).
Indeed, the National Taxpayer Advocate identified
capitalization issues as the most litigated issue for business taxpayers in the 1998 Report to Congress, and there is no sign the controversy has abated.
Further, a government-favorable resolution of this issue could encourage the IRS to pursue other
capitalization issues.
Today, we are busy analyzing a new set of R&D credit rules that, while far from perfect, are more reasonable and grounded in reality, and we are studying a framework for comprehensive guidance on
capitalization issues that hold the promise of moderating the drain those issues have been on both IRS and taxpayer resources.
Therefore, a feasibility analysis should also consider certain ownership and
capitalization issues.
The Institute also commended the Treasury Department for the recent advanced notice of proposed rulemaking on
capitalization issues.
The Notice acknowledges that the scope of controversies over
capitalization issues has increased in the wake of the decision in INDOPCO v.
He noted that the department is also working on ways providing bright-line guidance on
capitalization issues.
According to the document, the proposal attempts to "set forth an administrable and practical framework for addressing
capitalization issues by providing objective principles that draw lines between capital expenditures and deductible expenses.
