Victory for the banking industry re: Acquired property

James W. Rahmlow, The Daily Record Newswire

In somewhat of a reversal of position, and certainly a win for the banking industry, the IRS Office of Associate Chief Counsel has made a determination that real estate acquired by a bank through a loan foreclosure is not property acquired for resale and as such, the direct acquisition costs and certain indirect costs allocable to the property may be currently expensed.

Previously in IRS field attorney advice (FAA) 20123201F, issued in 2012, the IRS held that such costs had to be capitalized. While not directly referring to the IRS field attorney advice, the IRS issued AM 2013-001, which represents the current chief counsel’s position and effectively sits in front of the FAA.

The original contention by the IRS was that property acquired by a bank through loan foreclosure was property acquired for resale under Code Sec. 263A and as such, direct acquisition costs and related indirect costs allocable to the property must be capitalized. The IRS chief counsel subsequently concluded that a bank acquires property primarily for the purpose of recovering funds originally distributed to a borrower in the bank’s capacity as a lender.

The bank does not acquire the property to hold it primarily for resale and as such, does not have to treat the property under Code Sec. 263A. As a result, this allows the bank to take a current tax deduction.

Applicable federal rates and adjusted AFRs for April 2013
In Revenue Ruling 2013-9, the IRS issued its Applicable Federal Rates and Adjusted AFRs for April 2013. Below is a summary of those rates.

Applicable Federal Rates
Short Term    0.22%
Mid Term    1.09%
Long Term    2.67%
Adjusted AFRs
Short Term    0.22%
Mid Term    1.09%
Long Term    2.67%

These are the monthly rates. Quarterly, semiannual and annual rates are also available.

Is it still worth blowing the whistle?

Sequestration hits in many places, but the IRS whistleblower program is not an area that I thought would be affected. Nevertheless, the IRS announced on its website that award payments made to whistleblowers on or after March 1 will be reduced by 8.7 percent. Such reductions will be effective until the end of the federal government’s 2013 fiscal year end or sooner if there is intervening Congressional action.

In fiscal 2012, the IRS paid approximately $125 million to whistleblowers, some of the awards being discretionary and some of the awards being mandatory. The IRS stated that it will continue to compute the awards as it always has under Code Sections 7623(a) and 7623(b). After such amounts are computed, the 8.7 percent sequestration reduction will then be applied.

Interest rates on over and underpayments of taxes
In revenue Ruling 2013-6, the IRS announced that its interest rates will remain unchanged for overpayments and underpayments for the calendar quarter beginning April 1 and ending June 30.
The rates for the second quarter of calendar 2013 are as follows.

Corporations: 2 percent for overpayments, except that overpayments in excess of $10,000 will be 0.5 percent. Underpayments for corporations will be 3 percent except large corporate underpayments, which will be 5 percent.

Individuals: 3 percent for overpayments and 3 percent for underpayments.

No IRS furloughs until after April 15
In a recent information release (IR-2013-25), the IRS announced that while sequestration starts March 1, as it relates to employee furloughs, the actual furloughs will not take effect until after the end of the filing season. While employee pay is the largest expense of the Internal Revenue Service and as a result employee furlough days will be required, all employees will be given 30 days’ notice and it is not currently contemplated that any employee will need to take more than one furlough day per pay period. None of these furloughs will commence before April 15.
2013 vehicle depreciation dollar limits

As it does each year, the IRS released the inflation adjusted limitations on depreciation in 2013 for the business use of passenger automobiles, light trucks and vans first placed in service on or after Jan. 1, 2013. Most of the amounts do give effect to inflation, but the inflation adjustments are modest.

Originally designed to limit the allowable depreciation on so called “luxury vehicles,” Code Section 280F(a) imposes dollar limitations on the amount of depreciation that can be taken on the above mentioned vehicles regardless of the actual cost of the vehicle.

In the IRS release (Rev. Proc. 2013-21) the IRS listed qualifying depreciation amounts for vehicles in three categories.
For passenger automobiles depreciation is as follows: First year is $11,160 ($3,160 if bonus depreciation does not apply), second year is $5,100, third year is $3,050 and each succeeding tax year is $1,875.

For trucks and vans, the first year is $11,360 ($3,360 if bonus depreciation does not apply), second year is $5,400, third year is $3,250 and each succeeding tax year is $1,975.

The third category Sport Utility Vehicles and pickup trucks with a gross vehicle weight rating (GVWR) in excess of 6,000 pounds continue to be exempted from the “luxury vehicles” limitations due to a 2004 loophole which allows a $25,000 limit on Code Sec. 179 expensing of heavy SUVs.


James W. Rahmlow, a certified public accountant, is a partner with Mengel, Metzger, Barr & Co. He can be contacted at


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