QIP Update

An administrative fix to the qualified improvement property recovery period issue seems to be out of reach. For year end planning, Companies should analyze what they might have classified as QIP to see if a shorter recovery period classification is possible.


Via Tax Notes:


Treasury: Qualified Improvement Property Needs Technical Correction

Posted on Oct. 9, 2018

By Nathan J. Richman


IRS and Treasury officials have concluded they lack the regulatory authority to administratively fix the 2017 tax law’s drafting glitch omitting qualified improvement property (QIP) from 100 percent bonus depreciation.


“We’ve considered what authority we may have to issue any type of administrative guidance that would give this QIP the 15-year recovery period, and I think we have come to the point now where we need a technical correction,” to that part of the Tax Cuts and Jobs Act (P.L. 115-97), Ellen Martin, tax policy adviser, Treasury Office of Tax Legislative Counsel said October 5.


Without a technical correction, Treasury and the IRS “are not going to be able to release any administrative guidance at this point,” Martin said at the Capital Recovery and Leasing session of the American Bar Association Section of Taxation meeting in Atlanta.


The limit on regulatory solutions comes from the lack of authority for regulators to override otherwise clear statutory language, according to Scott Dinwiddie, IRS associate chief counsel (income tax and accounting). “There is a limit to statutory interpretation” despite the bad result, Dinwiddie said, adding that “there’s no authority for us, administratively, to step in and override the clear language of the statute.”


So far, the IRS and Treasury have declined to fix through regulations the bulk of the drafting glitch in the TCJA, leaving QIP outside of its 100 percent bonus depreciation provision. Proposed bonus depreciation regs (REG-104397-18) released August 3 address the so-called QIP quagmire for only a short period by allowing bonus depreciation on QIP acquired and placed in service between September 27 and December 31, 2017.


In response to the lack of QIP solutions in the proposed regs, practitioners suggested subregulatory options to alleviate the problem. Further, both Senate Finance Committee Republicans and a group of Senate Democrats have called for QIP clarifications.


Shortly after the proposed regs came out, IRS and Treasury officials suggested they would be interested to hear from the House Ways and Means Committee.