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:: Cost Segregation Audit Techniques Guide - Chapter 7.1 -
Casinos
INDUSTRY
SPECIFIC GUIDANCE - CHAPTER 7.1
- CASINOS
DEPARTMENT
OF THE TREASURY
INTERNAL
REVENUE SERVICE
WASHINGTON, D.C.20224
Large and Mid-Size
Business Division
March 7, 2003
MEMORANDUM FOR
INDUSTRY DIRECTORS, LMSB
DIRECTOR, FIELD
SPECIALISTS, LMSB
DIRECTOR, PREFILING AND
TECHNICAL GUIDANCE, LMSB
DIVISION COUNSEL, LMSB
DIRECTOR, COMPLIANCE, SBSE
FROM: Thomas
W. Wilson, Jr. /s/ Thomas W.
Wilson, Jr.
Industry Director,
Communications, Technology &
Media
SUBJECT: Field
Directive on Asset Class and
Depreciation for Casino
Construction Costs
INTRODUCTION
This memorandum
is intended to provide direction
to effectively utilize resources
in the classification and
examination of a taxpayer who is
recovering construction costs
through depreciation of tangible
property used in connection with
a land-based hotel/casino
complex. Special rules may apply
to floating casinos.
For
depreciation purposes, a
casino’s exterior facades are
I.R.C. § 1250 property and wall
coverings, millwork, lighting
fixtures, kitchen equipment
hookups and emergency power
generators are I.R.C. § 1245
property. However, if it can be
determined that the emergency
power generators’ output is
attributable to building
operations, a functional
allocation is appropriate for
these assets. Hotel/casino
complex site utilities are
depreciable as I.R.C. § 1250
property. A casino’s outdoor
pylon sign is a land
improvement, and part of the
sign may qualify as I.R.C. §
1245 property.
It is also
important to determine the
activity in which an asset is
primarily used to determine
whether it is includible in
Class Life 57, Distributive
Trades and Services, or Class
Life 79, Recreation.
RECOMMENDATIONS
The matrix
shown below contains
recommendations for the
categorization and lives of
various land-based hotel/casino
assets. If the taxpayer’s tax
return position for these assets
is consistent with these
recommendations, no adjustments
should be made to
categorizations and lives. If
the taxpayer reports assets
differently, then adjustments
should be considered.
ASSET
|
PROPERTY TYPE
|
RECOVERY PERIOD
|
Decorative Facades
(Decorative exterior
wall covering of the
hotel/casino complex)
|
§ 1250
|
39
years (40 years for
purposes of § 168 (g))
|
Ceilings (Dropped or
lowered ceilings with
decorative finishes)
|
§ 1250
|
39
years (40 years for
purposes of § 168 (g))
|
Wall
Coverings (Strippable
wall paper and vinyl)
|
§ 1245
|
5-7
years (10 years for
purposes of § 168 (g))
|
Millwork (Includes
decorative molding,
trim, paneling and
finish carpentry. Does
not include door and
window trim and other
items that are integral
parts of finished
building components.)
|
§ 1245
|
5-7
years (10 years for
purposes of
§ 168
(g))
|
Lighting (Chandeliers,
wall sconces, down
lighting, neon lighting,
column lights, theater
lighting plus cost of
the wiring and
electrical connections
associated with these
fixtures. Does not
include lighting
relating to operation or
maintenance of
building.)
|
§ 1245
|
5-7
years (10 years for
purposes of § 168 (g))
|
Kitchen
equipment hookups
(Electrical outlets
providing localized
power sources for
kitchen equipment. Does
not include outlets
relating to operation or
maintenance of
building.)
|
§ 1245
|
5-7
years (10 years for
purposes of § 168 (g))
|
Guest
room electrical outlets
(Outlets providing
general access to
electrical power)
|
§ 1250
|
39
years (40 years for
purposes of § 168 (g))
|
Generators (Emergency
power generators for
emergency/safety systems
and casino operations.
If some of the
generators’ output is
for building then
allocation is
appropriate)
|
§ 1245
|
5-7
years (10 years for
purposes of § 168 (g))
|
Door
locks (Hotel guest room
computerized door locks)
|
§ 1250
|
39
years (40 years for
purposes of § 168 (g))
|
Site
utilities (Systems that
are used to distribute
city-furnished utility
services from the
property line to the
casino complex)
|
§ 1250
|
39
years (40 years for
purposes of § 168 (g))
|
Outdoor
pylon sign (Consists of
a superstructure and
television-like message
screen)
|
§ 1250
Land Improvement.
|
15
years
|
EFFECT
ON OTHER GUIDANCE
This directive
should be applied in the context
of other applicable depreciation
principles. For example, normal
examination procedures should be
followed to determine whether
all appropriate costs, including
IRC § 263A expenses, have been
associated with a particular
asset. Examiners are encouraged
to exercise their professional
judgement when developing and
resolving factual issues.
This memorandum
is not an official pronouncement
of the law or the Service’s
position and cannot be used,
cited, or relied upon as such.
CONTACTS
If you have any
questions, please contact Eric
Lacher, Gaming Industry
Technical Advisor, at (702)
455-1123 (Eric.A.Lacher2@irs.gov).
cc:
Commissioner and Deputy
Commissioner, LMSB
Director,
Performance
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