Eric P. Wallace, CPA Boyer & Ritter CPAs and Consultants ewallace@cpabr.com

Transcription

1 Eric P. Wallace, CPA Boyer & Ritter CPAs and Consultants PRIMEGLOBAL 35th ANNUAL TAX CONFERENCE JANUARY 4-7, 2015 NEWPORT COAST, CA

2 TPRs as Finalized Rules and Theories Latest Updates and Evolutions of the TPRs TPR method change requirements Firm Logistics Best Practices, and a Comprehensive case study of an analysis of a taxpayer s depreciation schedule and its required method filings and 481(a) adjustments. 2

3 Applicable to you? Yes if you own fixed assets, have depreciation, buy fixed assets, improves or disposes of fixed assets, and/or have material and supplies That includes just about all for profit businesses (and 990Ts if they use federal depreciation rules) 3

4 Circular 230 Specifics Standards with respect to tax returns and documents, affidavits and other papers. (a) Tax returns. (1) A practitioner may not willfully, recklessly, or through gross incompetence (i) Sign a tax return or claim for refund that the practitioner knows or reasonably should know contains a position that (A) Lacks a reasonable basis; (B) Is an unreasonable position as described in section 6694(a)(2) ; or (C) Is a willful attempt by the practitioner to understate the liability for tax or a reckless or intentional disregard of rules or regulations by the practitioner 4

5 Regulation Requirements Final Regulations preamble, issued 9/2013 state: The final regulations provide that.. a change to comply with the final regulations is a change in method of accounting to which the provisions of sections 446 and 481 and the accompanying regulations apply. A taxpayer seeking to change to a method of accounting permitted in the final regulations must secure the consent of the Commissioner in accordance with (e) and follow the administrative procedures issued under (e)(3)(ii) for obtaining the Commissioner's consent to change its accounting method. In general, a taxpayer seeking a change in method of accounting to comply with these regulations must take into account a full adjustment under section 481(a). 5

6 Regulation Required Dates: General statement for the applicable sections state the following: (e) Effective/applicability date (1) In general. This section applies to taxable years beginning on or after January 1,

7 Regulation Required Dates: Then if these are effective/applicable why do you say that certain sections in the TPRs have to be applied to transactions in prior, albeit even closed tax years? Eric s reading of the regs.: Because if a prior year transaction had or should have had a change, as a result of the TPR principals/rules, to an asset that is or should have been on the taxpayer s depreciation schedule, it must be changed under the rules of 446 and 481(a). 7

8 Regulation Required Dates: Certain TPR applicable sections, instead of as of saying the TPRs are effective , state the following: (j) Effective/applicability date (1) In general. This section generally applies to amounts paid or incurred in taxable years beginning on or after January 1,

9 Regulation Requirements Beyond certain parts of the requirements requiring method changes: Parts of the TPRs are elections (DMSH, PAD, SHST***) Parts of the TPRs are optional for prior, current or future year issues (Removal costs, PADs) *** de minimis safe harbor, partial asset dispositions, safe harbor for small taxpayers 9

10 The TPR Method Changes are 99.9% Automatic If the method change has a number assigned to it by the IRS, it is an automatic method change All TPR methods have automatic method #s (#21, 184 to 194, 175 to 180, 195 to 207) Automatic method changes do not require a filing fee to file Can be done by the due date of the tax return, including extensions Be careful, once the scope limitations are done (i.e. expire for tax years after 2014) advance consent method change may be required 10

11 1-11

12 The Four Baskets of the Possible TPR Implementation The TPR Four Baskets of Implementation How to Apply Retroactive 1 Required Methods Current and Future Years 2 Required Methods Current and Future Years Retroactive 3 Optional Methods Some for Current and Future Years 4 Optional Elections Methods Current and Future Years 1-12

13 Use it or Lose It Rules (Applies to R & M and Depreciation)

14 New Regulation A taxpayer is not permitted to take advantage in a later year of the taxpayer's prior failure to take any such allowance or the taxpayer's taking an allowance plainly inadequate under the known facts in prior years. In the case of depreciation, if in prior years the taxpayer has consistently taken proper deductions under one method, the amount allowable for such prior years may not be increased, even though a greater amount would have been allowable under another proper method. 1-14

15 Repairs

16 Introduction Repairs = deductions Now can be: removal, demolition (but not 280B demolition types), moving and installation costs; Not: work performed prior to placing property into service (263A), or transaction costs, or costs that require capitalization under the regs (R.A.B.I. rules) 16

17 SUBJECT $$ TO THE R.A.B.I TEST 17

18 Amounts Paid to Improve Tangible Property i.e. the improvement standards, the R.A.B.I. rules

19 Amounts Paid to Improve Tangible Property Reg (a)-3(d) Requirement to capitalize amounts paid for improvements A TP generally must capitalize the related amounts paid to improve a unit of property owned by the TP For this purpose, a unit of property is improved if the amounts paid for activities performed after the property is placed in service by the TP Are for a betterment to the unit of property Restore the unit of property or Adapt the unit of property to a new or different use i.e. the new R.A.B.I. tests/criteria/rules 19

20 Unit of Property Note: This is a very important item in the TPRs

21 Important criteria to determine if expenditure can be written off Almost always considered early in TPR issues Unit of Property (U of P) Smaller the U of P likely required to be capitalized 21

22 Determining the U of P 1.263(a)-3(e) The unit of property determination is generally based upon the functional interdependence standard: Functionally interdependent if the placing in service of one component by the taxpayer is dependent on the placing in service of the other component by the taxpayer But there are. 22

23 Determining the UoP 1.263(a)-3(e) Special rules are provided for Buildings each building is a U of P Plant property Network assets Leased property Leased buildings and leased property other than buildings Improvements to property 23

24 Buildings 1.263(a)-3(e)(2) Building: each building and its structural components (as defined in (e)(2)) is a single unit of property An amount is paid to improve a building if the amount is paid for an improvement under (R.A.B.) to any of the following: Building structure. A building structure consists of the building and its structural components, or. 24

25 Buildings 1.263(a)-3(e)(2) Building Systems: HVAC, Plumbing, Electrical Escalators, Elevators Fire protection and alarm, Security Gas distribution Other as IRS provides in the future Or within the building systems or building structure, Or any item that performs a major and discrete function Or Any large physical portion of the building, 25

26 Unit of Property Issues One tangible personal property: no problem, all separate tangible personal property is a separate U of P: Example: TP buys 100 computers. Each computer is a separate U of P Apartment complex consisting of several buildings: each separate building must be separate U of P Large mall with buildings all connected together: must use facts and circumstances to determine if the U of P is one or separate buildings 26

27 Improvement Costs Criteria This is the I in the R.A.B.I. rules

28 What is Different with the R.A.B.I. Rules Prior criteria, elements, or fact patterns that we thought required the expenditure to be capitalized must be set aside. With the release of the final TPRs, if a criteria, element, or principal is not described, it is not to be considered in the determination of whether an expenditure should be capitalized For example. We will no longer consider if The TP spend a lot of money It made the property more valuable If the new criteria is not met, it is not considered in the R & M verses R.A.B.I. testing 28

29 Special Rules for Determining Improvement Costs Reg (a)-3(g) Certain costs incurred during an improvement 2 General Rule 1 A TP must capitalize all the direct costs of an improvement and all the indirect costs (including, for example, otherwise deductible repair costs) that directly benefit or are incurred by reason of an improvement Indirect costs arising from activities that do not directly benefit and are not incurred by reason of an improvement are not required to be capitalized under Section 263(a), regardless of whether the activities are performed at the same time as an improvement 29

30 Special Rules for Determining Improvement Costs Reg (a)-3(g) Removal Costs 3 If a TP disposes of a depreciable asset, including a partial disposition under Prop. Reg (i)- 1(e)(2)(ix), and has taken into account the adjusted basis of the asset or component of the asset in realizing gain or loss, then the costs of removing the asset or component are not required to be capitalized 30

31 Special Rules for Determining Improvement Costs Reg (a)-3(g) 4 If a TP disposes of a component of a unit of property, but the disposal of the component is not a disposition, then the TP must deduct or capitalize the costs of removing the component based on whether the removal costs directly benefit or are incurred by reason of a repair to the unit of property or an improvement to the unit of property 31

32 Special Rules Compliance with Regulatory Requirements 1.263(a)-3(g)(4) A Federal, state, or local regulator's requirement that a taxpayer perform certain expenditures on a UoP to continue operating the property is not relevant in determining whether the amount paid improves the UoP 5 32

33 Special Rules Compliance with Regulatory Requirements 1.263(a)-3(g)(4) 6 A federal, state, or local regulator s requirement that a taxpayer perform certain expenditures on a U of P to continue operating the property is not relevant in determining whether the amount paid improves the U of P 33

34 Routine Maintenance (different rules for Buildings and tangible personal property)

35 Building Routine Maintenance 1.263(a)-3(i) RM = the recurring activities that a TP expects to perform as a result of the TP's use to keep the building structure or each building system in its ordinarily efficient operating condition. The replacement of damaged or worn parts with comparable and commercially available replacement parts. Routine maintenance may be performed any time during the useful life of the building structure or building systems. 35

36 Building RM However, the activities are routine only if the taxpayer reasonably expects to perform the activities more than once during the 10-year period beginning at the time the building structure or the building system upon which the routine maintenance is performed is placed in service by the taxpayer RM = recurring nature of the activity, industry practice, manufacturers' recommendations, and the taxpayer's experience with similar or identical property. 36

37 Routine Maintenance for Property o/t Buildings The activities are routine only if, at the time the unit of property is placed in service by the taxpayer, the taxpayer reasonably expects to perform the activities more than once during the ADS class life of the asset Want to be able to do the RMSH? Must file method #184 and cite 1.263(a)-3(i) 37

38 Betterments

39 Capitalization of Betterments 1.263(a)-3(j) Ameliorates a material condition or 7 material defect (that existed prior to placing the property in service) Material addition to the U of P 8 9 Material Increase (in productivity or output) 39

40 Betterments to Buildings and Refreshments or Remodels Analysis of whether costs incurred to refresh or remodel a building result in a betterment requires an examination of all the facts and circumstances including, but not limited to The purpose of the expenditure, The physical nature of the work performed, The effect of the expenditure on the UoP, and No longer - the TP s treatment of the expenditure on its AFS 40

41 If one can only replace with better parts, not a consideration in betterment Technological advancements 10 The F TPRs clarified this rule Other rules Comparing the condition 11 41

42 Biggest Issue that is Uncertain in Betterment Criteria? The biggest issue to consider in the betterment rules is what does the phrase material betterment mean? If a TP adds 2% to its warehouse space, is that a material betterment? If a TP adds 10% efficiency to its HVAC system is that a material betterment? There is no direction provided by the regulations 42

43 Restorations This is the part of the R.A.B.I. rules that deals with items such as roof replacements

44 Restorations 1.263(a)-3(k) It returns the U of P to its ordinarily efficient operating condition after it had deteriorated to a state of disrepair and no longer used It is rebuilding to like-new condition after the end of its ADS class life Replaces a major component or substantial structural part of the U of P or Comprises a large physical portion of the U of P

45 Capitalization of Restorations Reg (a)-3(k) A TP must capitalize as an improvement an amount paid to restore a unit of property, including an amount paid to make good the exhaustion for which an allowance is or has been made An amount restores a U of P if it is 16 A replacement where TP deducted a loss, taken into account the basis in a sale, casualty loss 45

46 Thirty % of the Wiring in a Building Written-Off Examples 46

47 40% Capitalized Examples 47

48 Adapt Property to a New or Different Use 1.263(a)-3(l)

49 Amounts to Adapt Property to a New or Different Use 1.263(a)-3(l) 17 Paid if the adaptation is not consistent with the intended ordinary use of the unit of property at the time originally placed in service In the case of a building, if it adapts to a new or different use, any of the properties designated in paragraphs building structure and systems, condominium, cooperative, lease building Temporary Final regulation section is -3(l) is -3T(j) 49

50 New Annual Elections Construction Tax Update: Tangible Property Regulations

51 The Final Main TPR New Annual Elections The final regulations have six potential annual elections Election to capitalize and depreciate certain materials and supplies, (d) De minimis safe harbor election, (f)(1) Election to capitalize amounts paid for employee compensation or overhead as amounts that facilitate the acquisition of property (1.263(a)-2(f)(iv)(B)) 4 Election to capitalize repair and maintenance costs (1.263(a)-2(n)(1) 5 Safe harbor for small taxpayers (1.263(a)-2(h)(1)) 6 Partial Asset Disposition (1.168(i)-8(d)(2)) 1-51 An Eric P. Wallace CPA Seminar Boyer & Ritter CPAs

52 What the Annual Elections Require to Implement The final regulations ways to implement the elections: Election to capitalize and depreciate M & S: just capitalize the M & S De minimis safe harbor election: must made the DMSH statement Election to capitalize amounts paid for employee compensation or overhead: just capitalize the expense 4 Election to capitalize R & M Costs: must make the R & M statement 5 Safe harbor for small taxpayers: must make the SHST statement 6 Partial Asset Disposition: just complete the tax forms in the current year, usually the 4797 form, section I 1-52 An Eric P. Wallace CPA Seminar Boyer & Ritter CPAs

53 TPR Method Changes Construction Tax Update: Tangible Property Regulations

54 Understand What Happens When a TP Files a 3115 The purpose of a 3115 filing is to First: Change a TP s particular tax method of accounting These are automatic if they have been assigned a method number by the IRS Second: Catch up for the accounting method change difference between the prior method and the proposed method that the TP is changing to (this is the 481(a) adjustment) You have to know which TPR method changes are mandatory and which ones are optional 54

55 The Potential Typical TPR Method Required Filings #184, 186, 192 combined, concurrent Form 3115 filing on R & M, R.A.B.I. test, RMSH, Unit of Property and proper cost capitalization (R) #7 for impermissible depreciation methods (R) #21 for removal costs (O) #205 for certain building asset dispositions (PADs) and #206 for certain dispositions or PADs o/t buildings (O); and/or #196 for the late PAD elections that are voluntary (O) 55

56 184, 186, 192 Combination #184, due by 2014, is the method that enables a taxpayer to adopt: R & M of and take a 481(a) adjustment for all prior R & M that should not have been capitalized, as now viewed under the final TPRs RMSH of 1.263(a)-3(i) Unit of Property of 1.263(a)-3(e) The R.A.B.I. rules of 1.263(a)-3 ((g), (j),(l), (k)) A #184 filing must cite the applicable regulation section(s) about 50 potential cites! 56 Construction Tax Update: Tangible Property Regulations

57 184, 186, 192 Combination #186 is the method that enables a taxpayer to adopt: The write off of units of property $200 and under The Non-incidental material and supplies method change This one is for transactions and after (or ), so typically will not have a section 481(a) adjustment #187 is the incidental M & S rule 57 Construction Tax Update: Tangible Property Regulations

58 184, 186, 192 Combination #192 is the method that enables a taxpayer to adopt: The proper capitalization of 1.263(a)-2 for assets purchased or produced Example: you must capitalize all facilitative and inherently facilitative costs Inherently facilitative costs are specifically defined in 1.263(a)-2(f)(ii) 58 Construction Tax Update: Tangible Property Regulations

59 Next Required Method = #7 Method #7 for any impermissible to permissible depreciation changes for: Class lives that are not correct Bonus that was done right Assets that were depreciated that should not have been and vice versa See RP for common class lives to assets employed in various Activities Risk of not filing? IRS use of the use it or lose it rule, as now authorized by Construction Tax Update: Tangible Property Regulations

60 First Optional is #21 A method #21 filing enables a taxpayer (TP) not to have to capitalize any prior or future removal costs associated with an improvement (i.e. a R.A.B.I.) why not file for all TPs? A TP must also have a PAD on the prior asset disposed of (whether current year or prior) can choose each time to employ not Not due by 2014 but if a TP wants not to have to capitalize removal costs, it must file this method change 60 Construction Tax Update: Tangible Property Regulations

61 PAD for Buildings for Prior Years The particular method will depend on what the TP situation is, but could be #196, #205/206 TP can use any reasonable method to calculate the basis of those assets including: PPI roll back method Factorial comparison Cost segregation 61 Construction Tax Update: Tangible Property Regulations

62 Final Typical TPR Method Is #196, and/or #205/206 A #196 filing is the late PAD election and 481(a) reporting where the TP is voluntarily filing, it has no asset definition change, and it is for a part (partial asset) of an asset If those definitions are not met, then the TP has to file a #205/#206 Without a #196 filing, a TP will be required to reverse the 481(a)s taken under previously filed #177 and/or # Construction Tax Update: Tangible Property Regulations

63 Identify critical TPR implementation steps CPA Firm Logistics Construction Tax Update: Tangible Property Regulations

64 The typical TPR method changes and associated automatic method numbers Goal: To understand what the typical 3115 TPR filings are and establish firm procedures to address the TPR filing requirements

65 Repairs and Maintenance (R & M) (R), #184 with a citation to regulation section Material and Supplies (M & S), #186 and/or #187, with a citation to (R) Unit of Property, #184, with a citation to 1.263(a)- 3(e) (R) Restoration, adaption, betterment and improvement (the R.A.B.I. rules), #184 with a citation to the particular part of 1.263(a)-3(g), -3(j), -3(l), -3(k), as applicable (R)

66 Routine Maintenance Safe Harbor, #184 with a citation to 1.263(a)-3(i) (R if you want to take) Removal Costs, #21 (1.263(a)-3(g) (O) Acquisition of property, #192, (1.263(a)-2) (R) Depreciation impermissible methods, #7 (R) Employment of wrong class lives Employment of incorrect bonus taken or not taken Partial asset dispositions, or asset dispositions (1.168(i)-8(d)) [depending on the situation, these may be #196, #205, #206](O but R if you want to take by 2014)

67 The due dates for filing of the 3115s Goal: Learn and comply with the TPR filing due dates TPR Implementation Due Dates: Generally by tax year 2014, up to and including the extended due date of the return Scope limitations waived for certain issues generally only through 2014

68 The allowed or allowable rules and how the use it or lose it rules are a great risk to taxpayers and their CPA firms Goal: Understand and embrace the fact that taxpayers will permanently lose tax deductions for (a) depreciation related issues, and/or (b) R & M related deductions if the corrections related to 3115 filings are not done by tax year 2014 (IRS regulation a new regulation added as part of the TPR issuance)

69 Recommendation: Implement proper procedures to ensure that all depreciation impermissible methods are corrected under a method #7 filing and that all previously capitalized R & M expenditures (as now measured under the principals of the final TPRs) remaining depreciable basis are written off by tax year 2014 in a method # filing

70 TPR Logistics is the study of, determination of the required action items, and employment of procedures that enable a CPA firm to address the TPR issues that a firm may not have considered, or not considered all of the facets that should be addressed

71 Goal: Eliminate or reduce the risks that your firm faces in the performance of client service in preparing for, advising, and executing the Issue Identification and its matching tax form preparation required for the TPRs, due in the proper time frame

72 Recommendation: Study the TPR rules and regulations, identify the resultant issues, develop a firm action plan or goals, assign the proper staff personnel at the appropriate levels, determine due dates for each assignment, and finally monitor compliance and achievement of the TPR assignments/goals

73 Goal and Recommendation: Determine and employ the most effective and efficient method of Form 3115 preparation, including the required attachment answers and power of attorney preparation whether that process is the use the current firm tax preparation software or outside software/forms Keep in mind we have a one time compliance issue with the need to file 3115s for one tax year left (i.e. by 2014)

74 Goal: Determine the procedures or steps necessary for each firm client to assure TPR compliance, monitor those steps, and to develop checklists or processes to assure that all business clients have all of the proper 3115s filed by tax year 2014 in the proper manner and current and future applicable annual elections are properly made

75 Goal and Recommendation: Create an IT process to pre-populate the typical or common forms (such as the 3115, its attachment, and Form 2848, IRS Power of Attorney) for all of your clients/taxpayers

76 The proper signatures have been obtained on the 3115s The 3115s copy with original signatures are mailed to the proper address(es) All of the required 3115 attachments are included The 481(a)s are properly calculated The 3115 package original is attached as a pdf to the electronically submitted income return in the proper tax year All of the proper 3115s are included and submitted in the proper time period The POAs are properly signed and included in the 3115 submissions as an attachment

77 The proper 3115 methods are prepared and submitted Concurrent 3115s are submitted when required and methods that cannot be concurrent are not improperly included on one 3115 submission Considerations for 263A, when applicable, are included Audit protection issues are considered in the 3115 filings The CPA firm has identified all of the relevant TPR client issues The tracking of future positive 481(a) adjustments, if any, resulting from the 3115 filings

78 Firm Policies on Employment of reasonable methods (factorial comparisons; cost segregations; /PPI rollbacks) as to when appropriate or not Signing the 3115 returns originals or e-signatures or not Section 754 issues And others

79 Goal: Treat R & M verses R.A.B.I. properly under the new rules and not a continuation of the old capitalization habits Recommendation: Meet with your clients in advance of the finalization of their accounting and depreciation schedules for tax year 2014 to avoid the duplication of work efforts that will have to be revised as a result of the employment of the new TPR criteria/rules/elections

80 Goal and Recommendations: Create, initiate and then communicate to taxpayers, related to the TPRs The requirements The annual elections, how to, their individual purpose, and applicability to the taxpayer The internal taxpayer processes and records that will need to be adapted/changed not limited to: (i) capitalization policies, (ii) record retention, (iii) removal costs, (iv) landlord/tenant negotiations and documents

81 The work effort involved in complying with the TPRs and the needs from the taxpayer The potential tax deductions (i.e. negative 481(a) adjustments) and/or positive or IRS favorable adjustments (such as the new non-incidental M & S rules) The narrow time parameters for the majority of TPR method changes These communications can consist of individual client letters or s, postings on the firm web page, to unique industry considerations

82 Recommendation: Assure that your client has the future instructions/ability to discern the differences between R & M and R.A.B.I. The primary way that is is going to occur is to meet with your clients and assist them in: Understanding the new TPR R.A.B.I. rules Documenting the R.A.B.I. decision process so that they can make the proper write off or capitalization decisions at the time expenditures are made

83 Goal and Recommendation: Establish appropriate internal taxpayer processes to enable the memorialization of the R.A.B.I. process for taxpayer expenditures where the disbursement is required to be subject to the R.A.B.I criteria Current depreciation software records of Description of the asset Date placed in service Amount or cost of the asset Depreciation method, convention Bonus or not 179 or not Current year and accumulated depreciation are no longer sufficient Taxpayer must be able to support its decision to capitalize or not to capitalize an expenditure as an asset

84 TPR Case Study Construction Tax Update: Tangible Property Regulations Eric P. Wallace CPA Boyer & Ritter CPAs 8 4

85 Case Study Facts Commercial Landlord, LLC, (CLLLC) a partnership, owns one building that is a strip mall in Anytown USA. The building was purchased in 1989 for $2.5M. The building has 10 tenant spaces that are leased for various periods. When the building was purchased it was fully leased. You have obtained their tax depreciation schedule as of

86 Commercial Landlord Rent and Royalty - Depreciation and Amortization 12/31/2013 A Asset Number Description Date in Service M L Cost or Other Basis Accum Depr Net Remaining Depreciable Basis 1LAND 04/01/89L 1,143,000 1,143,000 2BUILDING 04/01/89MSL ,249, , ,304 TENANT 3IMPROVEMENTS 09/01/91MSL ,951 41,285 17,731 4IMPROVEMENTS 06/15/92MSL ,715 3,076 1,489 5LAND IMPROVEMENTS 02/08/01MSL ,360 28,360-10NEW HVAC 03/25/03MSL ,026 5,451 16,010 11IMPROVEMENTS 09/22/03MSL ,951 1,180 3,644 17IMPROVEMENTS 02/22/08SL ,048 1,121 7,695 18ROOF AND WINDOWS 06/30/08SL ,490 30, ,670 20ALL AC UNITS 05/07/11MSL , ,668-21LEASE COMMISSION 02/01/11A , ,

87 Case Method Filings and 481(a)s You know that you have to file the required 3115s by tax year 2014, so you analyze their tax depreciation schedule as follows and have come up with the following method required filing changes and 481(a) adjustments: Method #184, 186, 192 for $(46,569) Method #7 for $+118,142 Method #196 for $(80,551) Method #21 for zero, but need data from client Let s discuss the why of each of these 87

88 Commercial Landlord Rent and Royalty - Depreciation and Amortization 12/31/2013 A B C Asset Number Description Date in Service M L Cost or Other Basis Accum Depr Net Remaining Depreciable Basis TPR Code 481 (a) adj. 1LAND 04/01/89L 1,143,000 1,143,000 2BUILDING 04/01/89MSL ,249, , ,304 TENANT 3IMPROVEMENTS 09/01/91MSL ,951 41,285 17,731 R (17,731) 4IMPROVEMENTS 06/15/92MSL ,715 3,076 1,489 R (1,489) 5LAND IMPROVEMENTS 02/08/01MSL ,360 28,360 - R - 10NEW HVAC 03/25/03MSL ,026 5,451 16,010 R (16,010) 11IMPROVEMENTS 09/22/03MSL ,951 1,180 3,644 R (3,644) 17IMPROVEMENTS 02/22/08SL ,048 1,121 7,695 R (7,695) 18ROOF AND WINDOWS 06/30/08SL ,490 30, ,670 P1 (55,486) 20ALL AC UNITS 05/07/11MSL , ,668 - CL 118,142 P1 (25,065) 21LEASE COMMISSION 02/01/11A , ,

89 PPI Calculation Details Roof and Windows PPI Rollback Calculations: $261,490 times PPI of June of 2008 divided by PPI of April of 1989 ($261,490*182.4/113.0)= $161, less AD from 1989 to of $106,512=$55,486 All AC Units PPI Rollback Calculations: $124,668 times PPI of May of 2011 divided by PPI of April of 1989 ($124,668*192.5/113.0)= $73,182 less AD from 1989 to of $48,116=$25,065 89

90 PPI Discounting Table Determine the PPI differences Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

91 Case Study Conclusions/Thoughts on What CLLLC has to do: File (1) #184,186,192 concurrently, and cite 162-4, RMSH, make U of P statements, and the RABI citations of 1.263(a)-3, and report a $(46,569) 481(a); (2) a #7 separately and report a positive 481(a) of $118,142; (3) #21 and decide if it wants a 481(a) for prior removal costs or not; (4) a #196 with a negative 481(a) of $(80,551) Net or separately report its + and - 481(a)s but must make that decision when it files its 2014 return Calculate its AMT 481(a)s and will report those in its AMT schedules in its 2014 filings (and state differences in those returns) Mail the copy with original signatures 3115 and attachments to Ogden for all but #21 which goes to DC Attach the copied originals to its income tax filing for 2014 Include any elections it wants to in its 2014 return Report any related party filings on its 3115 attachments Decide if it wants to also complete and attach POAs 91

92 92