Repairs vs. Improvements: An Intractable Issue in U.S. Income Tax Law?

The issue is seemingly simple: Is an expenditure affecting tangible property used in business or held for investment currently deductible as a repair, or must it be capitalized as an improvement to the property? In practice, the issue has proven to be a major point of conflict between the IRS and businesses. The IRS and Treasury have worked for more than a decade to develop guidance for its agents and taxpayers that will reduce the number of factual disputes over this issue. These efforts culminated with the issuance in September 2013 of comprehensive regulations. The regulations do clarify many points of frequent contention, but they introduce another problem: The regulations are lengthy and very complex, with provisions affecting particular factual scenarios being scattered over scores of pages.This paper provides an explanation of these regulations. It will be published in the treatise, Boris I Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts.