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IRS Broadens Scope of Tax-Deductible Business Repairs

The IRS recently finalized rules making more repair costs deductible effective January 1, 2014. The deductibility of business repairs is a frequently disputed topic between the IRS and companies; many prominent businesses could experience substantial changes in their tax bills as a result of the final rules.

The final 220-page ruling expands safe harbors and clarifies numerous deductibility issues. Companies that meet these safe harbors – criteria that define deductibility – stand to get significant relief. Under these expanded safe harbors, for example, a new laptop computer costing under $5,000 now qualifies as a deductible expense. Previous guidelines required the capitalization of this cost. The expense was then recovered periodically through depreciation expense.

Some corporate audits centering on these disputes have been awaiting the final rules for resolution. The potential tax relief under these new rules should not be underestimated. In 2005, FedEx successfully challenged the IRS over deducting costs associated with the removal of aircraft engines. The US Court of Appeals upheld FedEx’s challenge, resulting in a $66.5 million refund.

The IRS is also working on developing repair rules for three specific industries: cable networks, natural gas firms and retailers. While the current proposal finalizes the rules from a broad standpoint, the end goal is to develop specific rules for different industries based on their operating functions.

For more information regarding the deductibility of business repairs, please contact Michael Sexton ( and Eric Seidman ( at Wouch, Maloney & Co, LLP (215-675-8364).

Chadwick Service Company offers a wide range of service including plumbing repairs, preventative maintenance services, and HVAC repairs. You can find more about our services at or please call us at 215-245-8200.