Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Nov 18

    The IRS has made changes in the capitalization vs. repairs accounting method, which means closer scrutiny.

    Cost will be considered repairs if they are incidental in nature and don’t add to the value of property or prolong the life of the property. Costs that permanently improve the value of the property, restore its value or restore it to adapt it to a new or different use must be capitalized.

    Example:  If an automobile engine is capitalized as an asset, then repairs on this engine would be likely capitalized.  However if the automobile is the asset, then repairs on the engine wouldn’t be capitalized but be classified as repair costs. 

            The IRS has issued a new Audit Technique Guide to assist in the audit of a change of an accounting-method involving capitalization vs. repairs. It will also be helpful in correctly classifying expenses as repair costs or capital improvements.

    IRS auditors are instructed to investigate the following for any costs that are reclassified as repairs:

    1. Determine through management reports, engineering assessments and invoices the reason the work was done.
    2. Decide if the costs were a unit of property (UOP) separate for the primary UOP.
    3. Determine the age of the asset, acquisition date and any prior work completed to that asset.
    4. What was the purpose of the repair, why was it done, the dates the repairs began and ended, when will the repairs have to be done again?
    5. Consider long term repairs and determine if the expenditures:
      • Result in new assets
      • Improve the property, making it operate better
      • Add new components
      • Add upgrades or modification, to improve the value of the property
      • Extend the useful life of the property
      • Improve the efficiency, quality, strength or capacity of the property
      • Give the property a new use.

    These factors tend to indicate that the expense must be capitalized and not be deducted as a repair.

  • Nov 4

    All business entities or employers must use E-Verify or be in danger of suspension of their business licenses and loss of expensing for state income tax purposes. 

    On June 9, 2011, the Beason-Hammon Alabama Taxpayer and Citizen Protection Act was signed into law by Alabama Gov. Robert Bentley. Supporters and opponents to the act are calling it the toughest one of its kind in the country to crack down on illegal immigrants, far worse than the 2010 Arizona law that was appealed to the Supreme Court. 

    The law’s self-described aim is to “preclude any state or local government or official from refusing to enforce federal immigration laws” and to “prohibit an alien unlawfully present in the United States from receiving any state or local public benefits.” It attempts to accomplish that goal by creating several newly-defined crimes. 

    The law prohibits private businesses from knowingly employing undocumented workers. It prohibits “aliens not lawfully present” in the United States from entering into business transactions, housing leases, and other forms of contract by making the contract void and unenforceable in the courts. Violations could cost you your business license. 

    The law went into effect September 1, 2011 with provisions governing employers, and imposing new obligations. The following is a summary of the employer’s obligations:

    1. Effective April 1, 2012 all employers in Alabama must verify through federal E-Verify all new hires and determine if they are illegal aliens. Businesses that receive any state contract, grant or incentive must enroll and use it a few months earlier, no later than January 1, 2012. They can’t continue to employ or hire for employment any unauthorized aliens to perform work in the state.  E-Verify will protect the employer from any violations in respect to the employment of employees and it is their only “get out of jail card” with Immigration Compliance and Enforcement (ICE) and the only safe harbor under the Alabama Immigration Act.  Employers must keep on file a copy of the I-9 and certify that the employee has presented documentation confirming his or her right to work in the U.S.  Make sure that your I-9 forms are the latest version and that you put an E-Verify policy in your employee handbook. 
    2. Any business entity or employer with 25 or fewer employees can use the Alabama Department of Homeland Security to run its E-Verify checks for free.  This service will be available within 90 days after the effective date of this act. 
    3. An employer who becomes aware of an employee with an illegal status must terminate the employee to avoid facing severe penalties such as probation and suspension of their business license. 
    4. A business entity or employer who deducts, from state income or business taxes, any wages, compensation or remuneration of any kind for services paid to an unauthorized alien, will be liable for a penalty equal to 10 times the business expense deduction claimed. 
    5. A business entity or employer who knowingly keeps an unauthorized alien and fails to hire a job applicant that is a U.S. citizen or authorized alien or fires a U.S. citizen or authorized alien, can be sued by the unsuccessful applicant in an Alabama civil action for discrimination under Section 17 and be awarded compensatory relief, court costs and reasonable attorney fees. 
    6. The act provides that no court will enforce the terms of, or regard as valid any contract entered into with illegal aliens. 
    7. The act makes it illegal to pick up any day labor in your vehicle on a street, roadway or highway for work at a different location if the motor vehicle blocks or impedes normal movement of traffic. This applies regardless of citizenship or alien status. 
    8. It will be illegal to transport an alien “in furtherance of the unlawful presence of the alien in the United States, knowingly or in reckless disregard to the fact that the alien has come to, entered or remained in the United State in violation of the federal law.” 
    9. It is illegal to induce an alien to come to or reside in Alabama if the person knows or recklessly disregards the fact that the alien will be in violation of the federal law.  It is also illegal to “conceal, harbor or shield” an alien for detection in any place, including any building or vehicles if the person knows or recklessly disregards that the alien is in the United States illegally. 
    10. It is illegal to enter into a rental agreement with an illegal alien, if the person knows or recklessly disregards the fact that the alien is in the United States illegally.