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Tax Adviser


Ever since the Tax Reform Act of 1986 added interest capitalization requirements to the uniform capitalization rules of Section 263A, taxpayers have grappled with the extremely complex computations necessary to properly calculate the interest to be capitalized when producing or acquiring property. Although the IRS has issued detailed proposed regulations on this topic, the rules are so burdensome that some taxpayers may find them unworkable. The treatment of interest capitalization is broken down into 20 questions that help elucidate these rules, define the relevant terms, illustrate the calculations and pull the rules together into a cohesive whole. Congress believed that comprehensive rules governing the capitalization of the costs of producing, acquiring and holding property, including interest, would more accurately reflect income and make the tax system more neutral. In considering final interest capitalization regulations, the IRS should certainly be concerned about taxpayers capitalizing the proper amount of interest. But advancing simplification should be a primary goal.

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