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* Baseline: includes capitalizable costs of equipment, materials, labor and other costs directly associated with maintaining and supporting the business.
(35) In accounting for the capitalizable costs incurred during a
(iii) Treatment for tax accounting purposes would be similar to that described in the Two-Way License Characterization, i.e., current income (except to the extent of contingent payments) and a deductible or capitalizable expenditure.
* Identify contracts that contain capitalizable assets
Included in these regulations are rules governing the distinction between fixed assets versus materials and supplies, what costs taxpayers must capitalize on the acquisition of tangible property, whether expenditures related to the property's operation are deductible repairs or capitalizable as improvements, when to recognize dispositions, and even how to define the unit of property One way to understand the regulations is to start with the proposition that all tangible property that is not inventory must be capitalized and depreciated unless there is an exception.
Improvements to land that are not capitalizable to the land, such as landscaping, and painting are considered construction only if performed in connection with other activities (whether or not by the same taxpayer) that constitute the erection or substantial renovation of real property.
Understandably, these broad definitions are hardly the clear guidance needed to determine whether an expense is deductible or capitalizable. One of the most influential cases in the area of distinguishing deductible tests from capitalizable expenditures is Plainfield-Union Water Code., 39 TC 333 (1962).