IRS clarifies capitalization of leasehold improvements

Description

Abstract: Leasehold improvements can pose some tricky tax issues for all parties involved. In a recent legal memorandum, the IRS addressed one such issue — the proper capitalization treatment of indirect costs incurred by a lessee to construct real property it then leased. This article takes a look at a case involving Internal Revenue Code (IRC) Section 263A, Capitalization and Inclusion in Inventory Costs of Certain Expenses, and IRC Sec. 263(a), Capital Expenditures, in which the lessee lost the battle.