LB&I Issues Directive For Cable Network Assets

The IRS Large Business and International Division (LB&I) issued a directive instructing examiners to discontinue exam activity and not begin new activity related to certain expenditures to maintain, repair or improve cable network property.

Taxpayers and the IRS have often disagreed about whether replacement of a particular item is an improvement that must be capitalized, because it has been difficult to apply capitalization principles to cable networks assets. The IRS issued Rev. Proc. 2015-12 to resolve this issue.

That revenue procedure provides two alternative safe harbor approaches to determine whether expenditures to maintain, replace or improve cable network assets may be deducted as repairs under Section 162 or must be capitalized as improvements under Section 263(a) or as property produced by the taxpayer under Section 263A: (i) the network allowance method or (ii) a units-of-property method.