1. Equipment and supplies presently being expensed under a minimum capitalization policy:

The IRS Has Changed How Business Assets, Repairs, and Supplies Will Be Handled Beginning New Year s Day. There Are Important Steps To Take Before Year End That Will Soften The Blow. By: Tom Zoebelein, CPA, Tax Manager The tax treatment of tangible property used in business has been an area of concern for the Internal Revenue Service and its focus for the last several years. The IRS first shot over the bow was the Temporary Regulation that was issued on December 23, 2011. The Regulation was to become effective a mere nine days later. The backlash from taxpayers and preparers forced the IRS to delay the effective date until January 1, 2014. The Final Regulation was issued September 19, 2013 which is the reason for this Client letter, as some of the provisions of the final Regulation require action on your part before December 31, 2013. The Final Regulation retains the January 1, 2014 effective date. Both the Temporary and Final Regulation make significant changes to traditional policy regarding fixed assets, supplies and repairs. If your business has an expense policy that expenses items acquired under a certain dollar amount, you need to read on as you may be affected by the Regulation. The new Regulation defines tangible property with a much broader definition than tradition practice. The Regulation defines tangible property to include traditional property, plant and equipment, as well as repair parts, spare parts, supplies, and nontraditional capitalization of repairs. This letter addresses the significant changes that could impact your business. Items in bold require your attention before December 31, 2013. Business minimum capitalization policy has the following changes: 1. Equipment and supplies presently being expensed under a minimum capitalization policy: a. Require a written policy (sample attached) in effect on or before the first day of the tax year to be allowed to continue as a current deduction. Action required: review your policy and have a written version to be issued not later than 1/1/14. b. This minimum capitalization policy must be followed for both book and tax purposes. 2. The Regulation provides for a cost it deems to be de minimis and if incorporated in the business expense policy not be challenged by the IRS (safe harbor). a. The use of the de minimis safe harbor must be elected each year in the tax return. b. This is an all or nothing election; if elected, your written policy must only provide the safe harbor amount. c. The de minimis election can include spare parts and non incidental supplies if elected.

3. The business expense policy permits a business to use an expense amount in excess of the safe harbor amounts, but the business will be required to defend its policy upon audit. The de minimis safe harbor amounts provided in the Regulation are as follows: i. $5,000 per item where the business has audited financials or is required to produce financial statements for a governmental agency (other than for income tax filings). ii. $500 for all other businesses. 4. Material and supplies are consumables that have a cost of $200 or less, such as parts to repair equipment, fuel, water and other similar items expected to be consumed within a year, and other property with a useful life of one year. The Regulation breaks material and supplies into incidental supplies and non incidental items. Incidental supplies are not inventoried and no record of consumption is kept. Items in this group can be expensed when paid. Non incidental material and supplies must be capitalized and expensed when used. a. Non incidental material and supplies can be included in the de minimis expense election. 5. The Regulation also includes as a material and supply rotables and emergency/temporary spare parts which are capitalized when acquired. Material in this category is only expensed when scrapped. Due to the problems of accounting for this type of material, the business can elect to capitalize this material as equipment and depreciate it over the same life as the equipment it services. a. Rotable supplies are items that are expected to be replaced during the life of the equipment they are supporting. They are placed in the equipment during a repair, and the original part is repaired and placed back in inventory. This could be an engine used in a transportation company or an airplane engine for FedEx. The rotatables are capitalized and only expensed when scrapped. b. Emergency spare parts are on hand to make a temporary repair until the correct part can be located. If a temporary part is not disposed after use, it remains capitalized until scrapped. Repairs to Business Property include the following changes: The Regulation introduces a concept of units for purposes of evaluating when repairs are to be capitalized. A unit of property is defined as one that can function independently. A computer with a printer connected is two separate units of property. The computer can function without the printer and vice versa. The computer cannot operate without the motherboard or any other internal parts so the computer is one unit of property. The breakdown of tangible property into functioning units is relevant to complex personal property (such as aircraft, vehicles, and heavy machinery) and developed realty. Most routine tangible property purchases would by definition is a single unit of property. The

Regulations take a similar approach with real property. Real property also includes leasehold improvements. A typical building, according to the Regulations, is comprised of the following component systems: 1. Heating, ventilation, and air conditioning, (HVAC) 2. Plumbing system 3. Electrical system 4. All escalators/elevators 5. Fire protection and alarms 6. Security systems 7. Gas distribution 8. Building shell a. Roof b. Windows c. Doors d. Exterior walls The breakdown into a building s component systems was purposely created for testing repair costs against the cost of the total building. A repair may seem insignificant when compared to the total building cost. The Regulation categorizes repairs and maintenance as follows: 1. Routine maintenance and repairs are defined as work that is expected to be performed at least once in the life of the asset. This category includes inspecting, cleaning, testing, and replacement of damaged parts. This applies to the unit of property for equipment and building systems for realty. Routine maintenance is expensed when paid. 2. The Regulation categorizes non routine repairs into three categories based on the action or result of the repair. a. Betterments must be capitalized under the Regulation, as betterments, unlike repairs, make material changes to the property. Betterments include: i. Fixing a material defect or condition known at the time of acquisition. It also includes fixing problems that arose during the production of the unit of property.

ii. Repairs that result in a material addition to or addition of a material component to the unit of property. It also includes repairs that resulted in a material increase in the capacity of the unit repaired. iii. Repairs that result in a material increase in productivity, strength, efficiency, quality or output. b. Restorations bring the property up to its intended use. Repairs in this category must be capitalized when: i. Property is rebuilt after the end of its depreciable life. ii. Replacement of a major component or structural part of the property occurs. iii. Property is remediated to efficient operating condition when it had been in such disrepairs that it was no longer functioning iv. Restoration of property after a loss/basis adjustment occurs which resulted in a tax deduction in a prior period. The following are examples: 1. Casualty loss 2. Basis used in a sale of a component 3. Tax deduction taken from a loss other than casualty c. Adaptation is the cost to convert the property to a new different use. That new use of the property is not consistent with its normal or ordinary use. Examples are: i. Converting manufacturing space into a showroom. ii. Developing land included in the original manufacturing site as a buffer now plotted for individual residential housing. iii. A retail pharmacy adapting a portion of the pharmacy floor space into a walk in clinic. 3. There is a special small business safe harbor election that permits a small business to expense certain building improvements instead of capitalizing the cost. A small business is defined as a taxpayer that has average gross receipts for the last three years of $10 million or less. Qualifying taxpayers may elect to be excluded from the improvement rules for any building with an unadjusted basis of $1 million or less. The exclusion election allows the taxpayer to: i. Expense all repairs, maintenance, and improvements and similar activities for the lesser of $10,000 or 2% of the unadjusted basis of the building. ii. Elect annually for each building.

iii. Deduct amounts under de minimis and reduce routine maintenance costs by $10,000 or the 2% allowance as per the above. 4. Taxpayers are permitted to elect to capitalize certain repair and maintenance expenses provided: a. This position is consistent with the book treatment for that expense. b. The yearly election, once made, will include all similar expenses treated as capital for books for the election year. c. The election is made by placing a statement in the return each year. The letter merely hits the high points of the new Regulation. There are other aspects of the new Regulation that could impact your business but are beyond the scope of this letter. One such item is the expanded the definition of acquisition costs required to be capitalized into the property acquired that is beyond this client letter. We are available to discuss these changes and how they may impact your business. Please do not hesitate to contact us at 205 323 5440.

Capital Expenditure Policy: Loyola University Chicago Page 2 of5 To provide guidelines under which capital expenditures will be approved and prioritized for the Current Fiscal Year Capital BUdget and 3-Year Capital Plan. To ensure that capital expenditures are properly monitored and tracked. SCOPE This procedure applies to all construction, capital improvements, major equipment purchases and other special projects requiring one or more expenditures totaling $25,000 or more. This includes projects that are partially or fully funded by outside funding sources (e.g. grants, gifts, etc.). Examples include: New construction (new buildings or major additions) Building repairs, renovations, demolition, or upgrades Major maintenance (capital renewal and deferred maintenance) Safety, ADA, or Legal Compliance construction projects Energy conservation improvements Grounds improvement Real Estate Acquisition or Leasing Vehicles HVAC Telecommunication and Information Technology systems (hardware and/or software) New or replacement equipment or furniture This process is designed to handle projects over $25k. VP Facilities has been allocated a certain amount each year to address small maintenance and emergency projects under this threshold. Other requests under $25k should be included in the departments' operating budgets. WHO SHOULD KNOW THIS POLICY President Provost Vice Presidents Deans Area Directors Other Finance/Accounting Personnel CONTACTS For questions regarding this policy, please contact University Budgeting &Financial Analysis at extension 5-7676. DEFINITIONS Capital Capital Assets are real or personal property that have a value greater than or equal to $5,000 and have an estimated life of greater than one year. Capital assets should be recorded at their historical costs, which include the vendor's invoice, initial installation cost, modifications, attachments, accessories necessary to make the asset usable. Historical costs include ancillary charges such as freight, site preparation costs, and professional and legal fees. For a repair or replacement to be capitalized, it must be part of a major repair or rehabilitation project, which increases the value and useful life of the building, such as the renovation of a student center or conversion of a basement to a usable classroom space. A replacement may also be capitalized if the new item/part is of significantly improved quality and higher value compared to the old item such as the replacement of an old shingle roof with a new fireproof roof. Replacement or restoration to original utility level would not qualify for treatment as a capital item. Determinations must be made on a case by case basis. The following expenditures are examples of maintenance expenses that would not be capitalized: Interior renovation such as repainting, replacement of carpet, plumbing or electrical repairs, cleaning, replacement of a part of a building with a new part of the same type and performance capabilities, such as the replacement of an old boiler with a new one of the same type and performance capabilities. Capital Planning Committee This committee will consist primarily of the Budget Review Team (President, Provost, Associate Provost, VP of Strategic Capital Planning, VP of Finance, VP of Human Resources, Director of University Budgeting & Financial Analysis, VP of Facilities). The committee is for assessing the university's capital needs and opportunities, evaluating them with respect to the university's overall and for project implementation. They will prepare the Current Fiscal Year Capital Budget and 5-Year Capital Plan. A. CAPITAL FUNDING In order to begin planning for future capital expenditures, there must be expendable funds available in the capital budget. Expendable funds can be general funds or funds related to a specific project. 1. General funds are defined as those funds available to be expended on any capital project authorized by the University. The annual depreciation is the initial deposit to the capital budget and it becomes available for approved capital expenditures. The initial estimate of depreciation will be adjusted to actual at year end. From time to time other general funding becomes available and is assigned to the capital budget by the CFO. These funds are available as general funding unless they are specifically identified to a specific project. 2. Specific funding is specifically related to a project. An example would be a bond financial construction project. These funds will be segregated from general operating funds and brought into the capital budget as funds are expended on the project. 3. Due to timing of project expenditures, funding will be broken out to equal current year expenditures. http://www.luc.edu/finance/capexppolicy.shtml 7/16/2013

Expense Policy Pagelof3 Phone: (423) 648-3413, Fax: (423) 698-2912, email: epbecu@epbecu.org The information contained herein is for the Directors, Officers, Employees and Members of EPB Employees Credit Union, 1500 McCallie Avenue, Chattanooga, Tennessee, USA. It is provided as both a convenience and as an off-site backup in case of an emergency. No authorization is given to any other person or entity to use this infonnation in part or in whole. PURPOSE: EXPENSE POLICY (Policy on Capitalizing Expenditures) EPB ElvlPLOYEES CREDIT ljnion This policy is for the purpose ofestablishing guidelines to be followed in determining what expenditures will be capitalized by the Credit Union. ACCOUNTING PRINCIPLE: The criteria used in establishing these guidelines is based upon Generally Accepted Accounting Principles (GAAP)... to not capitalize an expenditure for a capital item would result in an understatement ofassets and Net Income. Conversely, to capitalize an expenditure when it should be expensed would overstate Assets and Net Income. PURCHASE AUTHORIZATION: By establishing these guidelines, the Board ofdirectors ofthe EPB Employees Credit Union authorizes its Manager or Acting Manager to make expenditures without prior Board approval for capital items with a value of$300 or less and no more than four such purchases in any fiscal year. Expenditures made for all other capital items require prior Board approval. GUIDELINES: Additions, replacements, and improvements should be capitalized ifthey meet the requirements set forth below. Maintenance and repair charges should never be capitalized. The expenditure for an item normally will be capitalized ifit meets anyone ofthe following: 1. **Cost $600 or more and has a useful life ofat least two (2) years, or 2. Extends the useful life ofan existing asset by at least two (2) years, or 3. **Consists ofmultiple items purchased in quantity costing $600 or more ifthe items are to be used together as a unit. The following items would fall in this category: panels, drawers, cubicle file cabinets, mini blinds where all windows are covered, etc. http://www.epbecu.orgjpolicvexpense.htm 7/1 h/')ol ~

Capital Expenditures Policy and Procedures CAP01 1. Document History Revision Number Revision Date Effective Date Description of Changes Prepared By Approved By 1 5/14/04 5/17/04 Initial Release Sam Davis Susan Jones 2. Table of Contents 1. Document History...1 2. Table of Contents...1 3. Purpose of This Document...1 4. Definitions...2 5. Policy...2 6. Process Summary...3 7. Workflow...4 8. Procedure...5 8.1 Requestor Identifies Need...5 8.2 Corporate Requestors Obtain Approval from Manager...5 8.3 New Vendor Added to Accounts Payable Corporate Master Vendor List...5 8.4 Requestor Enters Requisition Into WorkPlace...5 8.4.1 Checking the Status of a Requisition...12 8.5 WorkPlace Routes Request Through Approval Process...13 8.5.1 Requisition Approved...13 8.5.2 Requisition Not Approved...13 8.6 Operations Controller Creates Purchase Order...13 8.7 Requestor Places Order with Vendor...14 8.8 Vendor Fills Order...14 8.9 Vendor Mails Invoice to Requestor...14 8.10 Requestor Mails Invoice and Attachments to Corporate Accounts Payable...14 8.11 Corporate Accounts Payable Pays Vendor...14 3. Purpose of This Document This document describes the Capital Expenditures policy and the procedures that an ABC Corporate or Market employee follows to request and purchase a capital item on behalf of the company. This document also describes the review, approval, and tracking process performed by the Corporate office for each purchase. This document also addresses the related accounting recognition for capital expenditure purchases. Capital Expenditures ABC Company Inc. Page 1

Capital Expenditures Policy and Procedures CAP01 4. Definitions Capital Expenditure The money spent for acquiring or upgrading assets. Relative to ABC s business, capital expenditures are generally made to purchase furniture or fixtures, computers, programming equipment or upgrades, broadcast technical equipment or upgrades, leasehold improvements, or automobiles. The icon indicates the presence of an internal control. 5. Policy ABC is responsible for establishing adequate controls over capital expenditures to ensure the timely procurement of these assets and accurate and timely recognition of these assets in the accounting records. Our policy requires that the requisition and purchase of all capital expenditures must follow the procedure as stated within this document. The objectives of this procedure are to Specify and set up capital expenditure vendors. Allow for management review and approval for investments made in capital equipment. Recognize qualifying purchases as fixed assets in the company s accounting systems. Track and review capital projects against predefined budgets or plans. Pay for capital expenditure items on a timely basis and consistent with approved order details. Leverage the company s purchasing power through centrally negotiated purchase contracts with key capital vendors. The company does not consider purchases below $600 to be capital expenditures. Assets purchased below the $600 limit are expensed as they are received. Page 2 ABC Company Inc. Capital Expenditures