Turbine maintenance costs easier to deduct after court decision | Norton Rose Fulbright
A barge company overhauled the engines on its towboats every three to four years. It spent $100,000 on average for each overhaul. A new engine would have cost $1.5 million. A rebuilt engine could have been purchased for $600,000. The barge company inspected about 90% of the parts of the engine and replaced, on average, 21%. The IRS argued that the overhaul costs had to be capitalized because they extended the useful life of the towboat. The US tax court disagreed, saying this was nothing more than routine maintenance.
The case is Ingram Industries v. Commissioner. It is a huge win. The airlines have been fighting the IRS for years over whether the cost of periodic major maintenance checks on jet engines can be deducted. IRS agents usually require that such costs be capitalized and recovered through depreciation of the engine over time. Negotiations between the airline industry and the US Treasury over the issue have not yet led to an agreement.