Tax Fixed Asset Consulting

What it is:

NorthGreen Associates can assist companies with identifying and correcting assets that were incorrectly capitalized for federal income tax purposes.  Errors include assigning an incorrect recovery period, method, or convention.  In addition, companies may have missed claiming bonus depreciation on eligible assets or missed assigning special depreciable lives to certain qualified assets such as Qualified Leasehold Improvements.

Why:

Misclassified assets may create a tax liability for a taxpayer in the form of overstated depreciation if longer-lived assets were incorrectly assigned a shorter-lived recovery period.  For example, real property assets, typically depreciated over a 39-year or 27.5-year life, that were assigned a shorter-lived personal property recovery period (under 20 years) could lead to a large unfavorable correction and penalties should the IRS discover the mistake.

Misclassified assets may conversely have caused a taxpayer to understate depreciation if shorter-lived assets such as personal property were assigned a longer-lived recovery period.  For example, if equipment assets typically depreciated over a 5 or 7-year life, were incorrectly assigned a 39-year real property life.  In this case, the taxpayer can correct the misclassified assets and take advantage of the shorter recovery period by claiming a favorable "catch-up" depreciation adjustment in its current tax year.  These "catch-up" adjustments represent the depreciation that should have been claimed if the assets were assigned the correct depreciable life in the year the asset was first placed in service.

How:

NorthGreen Associates will request an electronic download of your companies fixed asset listing in order to review and identify misclassified assets.  We will provide an estimated impact (favorable and unfavorable) for your review and discuss the procedures for making the corrections on your tax  return as well as within your accounting system.  Corrections to your tax return can involve amending the tax return in which the misclassified asset/s were first placed in service or by adjusting accumulated depreciation in the current tax year via a Section 481(a) adjustment and the filing of a Form 3115 Application for Change in Accounting Method. 


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