POWER PLANT REPAIRS get attention from a task force of IRS and Treasury officials.
The task force is working on bright-line tests for distinguishing “repairs” from “improvements” at power plants. Repairs can be deducted immediately. The cost of any improvements must be added to the tax basis in the power plant and deducted over time as depreciation.
The task force hopes to have a draft revenue ruling ready in February to start circulating within the IRS and Treasury for signoff. The ruling will not address what is the “item of property” for purposes of assessing whether something is a repair. Obviously, if the item of property is the entire power plant, then $100,000 in spending looks less significant — and more like a repair — than if the item of property is a valve. The task force feels certain that the entire power plant is not the item of property. It believes each turbine — and perhaps even something larger — is a separate item of property. It cannot agree on where to draw the line beyond that.
Instead, the revenue ruling will address some common fact patterns that come up in utility audits. The task force is looking at nine fact patterns submitted by utilities.