Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

IOWA ON 2003 BONUS DEPRECIATION: YOU MUST AMEND

October 20, 2004

The Iowa Department of Revenue stands by its decision to require amended returns for taxpayers who took the 50% "bonus depreciation," or Section 179 deductions in excess of $25,000, on their 2003 federal returns. The Iowa legislature last month retroactively allowed taxpayers to take these extra deductions for 2003.

The Iowa State Bar Association Tax Council had sent a letter urging the Department to permit taxpayers to treat the change as an accounting method change, allowing taxpayers to take the extra deductions on their 2004 returns. This would save millions of dollars in compliance costs for taxpayers who will now have to pay for otherwise unnecessary amended returns to take the new deductions.

Allowing the "accounting method" approach would harm no taxpayers and help many. The Bar Tax Council feels the department has the authority to do so; it therefore seems the Department has at least a credible argument for permitting accounting method treatment. Nobody would be harmed by that position, and nobody would have challenged it.

The Department has failed to implement the new depreciation rules in a sensible, taxpayer-friendly way. This seems an odd approach to implementing "economic development" legislation.

LEGISLATURE MAY STEP IN

The legislature may enact legislation in January to permit taxpayers to make the change on their 2004 returns. If amending returns is not cost-effective for you, it makes sense to wait for the legislature.

Even if the legislature fixes thse problem in January, it is a second-best solution; if it comes at all, it will come in the middle of filing season, making implementation awkward.

Links:

Text of Department's response to The Iowa State Bar Association Tax Council letter.

The Iowa State Bar Association Tax Council letter

Prior Tax Update Coverage.

 • Iowa Bonus Depreciation       Bookmark: del.icio.us • Digg • reddit