Gaap Purchased Software Capitalization Rules

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  • 1.35.6 Property and Equipment Accounting
    • 1.35.6.1 Program Scope and Objectives
      • 1.35.6.1.1 Background
      • 1.35.6.1.2 Authorities
      • 1.35.6.1.3 Responsibilities
        • 1.35.6.1.3.1 CFO and Deputy Chief Financial Officer
        • 1.35.6.1.3.2 Associate CFO for Financial Management and Deputy Associate CFO for Administrative Financial Management
        • 1.35.6.1.3.3 Director, Financial Reporting
        • 1.35.6.1.3.4 Director, Facilities Management and Security Services (FMSS)
        • 1.35.6.1.3.5 Deputy Director, FMSS
        • 1.35.6.1.3.6 Office of the Chief Procurement Officer
        • 1.35.6.1.3.7 Chief Information Officer
        • 1.35.6.1.3.8 Program Manager, IT Service Asset and Configuration Management
        • 1.35.6.1.3.9 Chief, CI
        • 1.35.6.1.3.10 CI Director, Field Operations
        • 1.35.6.1.3.11 CI Field Offices
        • 1.35.6.1.3.12 Criminal Investigation Management Information System Equipment Coordinator
        • 1.35.6.1.3.13 Business Units
      • 1.35.6.1.4 Program Management and Review
      • 1.35.6.1.5 Program Controls
      • 1.35.6.1.6 Terms/Definitions
      • 1.35.6.1.7 Acronyms
      • 1.35.6.1.8 Related Resources
    • 1.35.6.2 Acquisition of Goods and Services
      • 1.35.6.2.1 Shopping Cart Process
      • 1.35.6.2.2 Procurement Process
      • 1.35.6.2.3 Receipt and Acceptance Process
    • 1.35.6.3 Recording Property and Equipment Transactions
    • 1.35.6.4 Property and Equipment Capitalization
      • 1.35.6.4.1 Accounting Treatment for Information Technology Equipment and Software
      • 1.35.6.4.2 Non-IT Equipment
      • 1.35.6.4.3 Furniture and Fixtures
      • 1.35.6.4.4 Internal Use Software
      • 1.35.6.4.5 Investigative or Forensic Equipment
      • 1.35.6.4.6 Leasehold Improvements (LHI)
      • 1.35.6.4.7 Assets Under Capital Leases
      • 1.35.6.4.8 Treasury Franchise Fund
      • 1.35.6.4.9 Vehicles
    • 1.35.6.5 Inventory
      • 1.35.6.5.1 Inventory Systems
      • 1.35.6.5.2 IT Equipment Distribution for Refreshment vs. Equipment Repurpose
      • 1.35.6.5.3 Physical Custody
      • 1.35.6.5.4 Physical Inventory
    • 1.35.6.6 Reconciliation of IFS to KISAM
    • 1.35.6.7 Maintenance, Repair and Rehabilitation
    • 1.35.6.8 Disposals and Missing Assets

1.35.6 Property and Equipment Accounting

Manual Transmittal

September 27, 2019

Purpose

(1) This transmits revised IRM 1.35.6, Financial Accounting, Property and Equipment Accounting.

Object Moved This document may be found here. Software licenses are granted to either a fixed or unlimited number of users to use COTS software. The IRS treats software licenses as capital leases when they meet the capital lease criteria and the COTS software capitalization criteria. The IRS funds the NPV of capital leases in the first year, in accordance with OMB Circular No. GAAP & Capitalization of Assets Rules. By: Cam Merritt. GAAP allows companies to capitalize the full costs of acquiring an asset and preparing it for use. Suppose a publishing company buys a $5 million press from a manufacturer in Germany. Not only can the company capitalize the purchase price of the press, it can also capitalize the cost of. Internal-Use Software Accounting Rules about Software asc 350-40: Internal-Use Software- AICPA SOP 98-1- 'Accounting for the Costs of Computer Software Developed or Obtained for Internal Use' asc 985-20: Costs of Software to Be Sold, Leased, or Marketed- SFAS 86, August 1985.

Material Changes

(1) Overall, rearranged to follow new IRM format style.

(2) Minor editorial changes.

(3) IRM 1.35.6.1.1, Background, added bullet 4 documenting implementation of property and equipment subsidiary.

(4) IRM 1.35.6.1.3, Responsibilities, updated responsibilities.

(5) 1.35.6.1.4, Program Management and Review, clarify Program reports and Program effectiveness.

(6) IRM 1.35.6.1.6, Definitions, updated definitions.

(7) IRM 1.35.6.1.7, Acronyms, added acronyms.

(8) IRM 1.35.6.2.1, Shopping cart Process, removed process steps that are documented elsewhere.

(9) IRM 1.35.6.2.2, Procurement Process, removed process steps that are documented elsewhere.

(10) IRM 1.35.6.2.3, Receipt and Acceptance Process, removed process steps that are documented elsewhere.

(11) IRM 1.35.3, Recording Property and Equipment Transactions, removed process steps that are documented elsewhere.

(12) IRM 1.35.6.4, Property and Equipment Capitalization, bullet 5) chart is revised to reflect current process.

(13) IRM 1.35.6.4.1, Information Technology Equipment, revised to reflect current process.

(14) IRM 1.35.6.4.2, Non-IT Equipment, revised to reflect current process.

(15) IRM 1.35.6.4.3, Furniture, revised to reflect current process.

(16) IRM 1.35.6.4.4, Internal Use Software, revised to reflect current process.

(17) IRM 1.35.6.4.5, Investigative/Enforcement Equipment, revised to reflect current process.

(18) IRM 1.35.6.6, Reconciliation of IFS to KISAM, modified to reflect current business alignment.

(19) Previous IRM 1.35.6.8.3.1, Receipt, removed due to redundancy, information located in another IRM.

(20) Previous IRM 1.35.6.8.3.2, Acceptance, removed due to redundancy, information located in another IRM.

(21) IRM 1.35.6.8, Disposals, updated to reflect current process.

Effect on Other Documents

This IRM supersedes IRM 1.35.6, dated July 26, 2016 and incorporates Interim Guidance Memorandum CFO-01-1118-42, Interim Guidance on Property and Equipment Accounting, dated December 19, 2018.

Audience

All divisions and functions.

Effective Date

(09-27-2019)

Ursula S. Gillis
Chief Financial Officer

  1. Purpose: To provide guidance for recording property and equipment transactions, ensuring data integrity and accountability.

  2. Audience: All divisions and functions

  3. Policy Owner: CFO

  4. Program Owner: Financial Reporting (FR)

  5. Primary Stakeholders: CFO, Procurement and the IRS business units

  6. Program Goals: To maintain internal controls to ensure accurate and timely accounting treatment for property and equipment in alignment with IRS and Treasury guidelines.

  1. In October 1990, the Secretary of the Treasury, the Director, Office of Management and Budget, and the Comptroller General established the Federal Accounting Standards Advisory Board (FASAB) by a memorandum of understanding (MOU). These standards are recognized as generally accepted accounting principles (GAAP) for the federal government.

  2. The IRS set up a base cost for all property and equipment using the statistical analysis report, Estimation of the Net Book Value of Property and Equipment of the IRS as of September 30, 1999. Subsequently, all property and equipment are recorded at actual cost.

  3. The American Appraisal Associates established the useful life of property and equipment categories as of September 30, 1999. The IRS uses the American Appraisal Associates report as a baseline and periodically checks the useful life categories to verify that they are reasonable and makes changes when appropriate.

  1. The authorities for these policies are:

    1. Chief Financial Officers Act of 1990, Pub. L. No. 101-576

    2. 40 USC 524, Duties of Executive Agencies

    3. Federal Managers' Financial Integrity Act of 1982 (FMFIA) Pub. L. No. 97-255

    4. E-Government Act of 2002, Pub. L. No. 107-347

    5. 31 USC 3512, Executive Agency Accounting and Other Financial Management Reports and Plans

    6. 41 CFR, Public Contracts and Property Management, Chapters 101 and 102

    7. 41 CFR Part 102-36, Disposition of Excess Personal Property

  1. This section gives responsibilities for:

    1. CFO and deputy CFO (DCFO)

    2. Associate CFO (ACFO) for Financial Management (FM) and deputy ACFO for Administrative FM (AFM)

    3. Director, FR

    4. Director, Facilities Management and Security Services (FMSS)

    5. Deputy director FMSS

    6. Office of Chief Procurement Officer (OCPO)

    7. Chief Information Officer (CIO)

    8. Program manager, IT Service Asset and Configuration Management (SACM)

    9. Chief, Criminal Investigation (CI)

    10. CI director, Field Operations

    11. CI field offices

    12. CI Management Information System (CIMIS) equipment coordinator

    13. Business units

  1. The CFO and deputy CFO are responsible for overseeing compliance with accounting policies for Servicewide property and equipment.

Associate CFO for Financial Management and Deputy Associate CFO for Administrative Financial Management

  1. The ACFO for FM and deputy ACFO for AFM are responsible for providing Servicewide property and equipment guidance to the business units and offices, and ensuring the proper recording of property and equipment of transactions on the financial statements.

  1. The director, FR, is responsible for:

    1. Overseeing accounting procedures and internal controls for administrative property and equipment accounting.

    2. Ensuring property and equipment transactions are accurately posted to the Asset Accounting Module (AAM).

    3. Ensuring proper financial recording of property and equipment disposals .

    4. Reporting if any deferred maintenance exists or if there are impaired assets that need to be written down to net realizable value.

Director, Facilities Management and Security Services (FMSS)

  1. The director, FMSS, is responsible for setting Servicewide policies, procedures, standards and guidelines for purchasing and using furniture and equipment by:

    1. Providing central oversight and guidance for managing property and equipment.

    2. Planning, negotiating, executing and managing property and equipment procurement activities.

    3. Conducting internal control reviews of property and equipment.

  1. The deputy director, FMSS, is responsible for receiving, evaluating and disposing of foreign gifts, decorations and unconditional (in-kind) gifts tendered to IRS employees consistent with the Foreign Gifts and Decorations Act of 1966, amended (5 USC 7342) and Delegation Order 1-24 (FMSS Property and Asset Management Desk Guide).

  1. The OCPO is responsible for establishing, maintaining and ensuring purchases are in accordance with the Federal Acquisition Regulations and Department of Treasury regulations and acquisition procedures.

  1. The CIO is responsible for:

    1. Managing all IRS IT resources.

    2. Delivering and maintaining modernized information systems throughout the IRS, including information security policies, procedures and control techniques to address system security planning and all applicable needs.

    3. Ensuring information systems maintain an approved security plan, are authorized to operate and the ability for reporting of all security-related activities.

    4. Designating a point of contact (POC) to coordinate all policy issues related to information systems security including: computer security, telecommunications security, operational security, certificate management, electronic authentication, disaster recovery (DR) and critical infrastructure protection related to cyber threats.

    5. Ensuring property and equipment acquisitions greater than or equal to $50,000 are traceable and recorded in KISAM.

Program Manager, IT Service Asset and Configuration Management

  1. The program manager, IT SACM, is responsible for:

    1. Providing oversight, coordination and guidance on the asset management of IT equipment Servicewide within KISAM.

    2. Performing analyses of the KISAM database and identifying anomalies.

    3. Maintaining business rules for asset management processes.

    4. Developing and improving asset management and control processes.

    5. Providing direction to asset owners and IT staff for property and equipment activities to strengthen asset management processes and controls.

    6. Ensuring new assets are entered timely into KISAM.

  1. The chief, CI, is responsible for:

    1. Maintaining and coordinating the inventory, control and accountability of all CI investigative and non-investigative equipment.

    2. Establishing uniform rules and guidelines for CI equipment assignment, use, application and loan to maintain proper security and to prolong service life.

    3. Providing an electronic extract of Criminal Investigation Management Information System (CIMIS) data to requestors.

    4. Allocating CI equipment to field offices.

    5. Fulfilling all roles of a property manager including records accountability.

    6. Coordinating CI procurement programming with the Procurement office.

    7. Ensuring new CI assets are entered in CIMIS timely.

  1. The CI, director, Field Operations, is responsible for:

    1. Maintaining an accurate record of all investigative equipment, investigative accessories and investigative supplies assigned to the director, Field Operations.

    2. Designating an area CIMIS equipment coordinator responsible for training new operators and providing aide to the field office equipment coordinators within their area.

  1. The CI Field Offices are responsible for maintaining an accurate record of all investigative equipment.

Criminal Investigation Management Information System Equipment Coordinator

  1. The CIMIS equipment coordinator is responsible for:

    1. Ensuring information for access to CIMIS is provided by new users to the CIMIS user administrator.

    2. Ensuring all users are aware of security procedures.

    3. Offering all excess equipment to all other field offices before disposal.

    4. Ensuring physical inventory of investigative equipment is completed, documented and reported to the National Criminal Investigation Training Academy (NCITA) within the prescribed time frame in the fourth quarter of each fiscal year.

  1. The business units are responsible for:

    1. Complying with policies and procedures to requisition, purchase and safeguard property and equipment.

  1. Program Reports - The IRS uses IFS as its official financial system of record and reports the historical cost, depreciation and net book value of Property, Plant and Equipment (PPE) in its annual financial statements following the FASAB and the Office of Management and Budget (OMB) guidance.

  2. Program Effectiveness - The effectiveness is measured by ensuring that all asset classifications are valid and recorded timely at the appropriate thresholds.

  1. FR developed controls to ensure property and equipment balances are materially accurate by:

    1. Analyzing requisitions that are coded to be recorded in the AAM.

    2. Analyzing all PPE and certain expense transactions $50,000 and greater to ensure they are classified correctly.

    3. Reconciling the PPE databases between AAM, KISAM and CIMIS.

    4. Reconciling AAM to the general ledger monthly.

    5. Reviewing disposals quarterly.

    6. Segregating duties.

    7. Limiting IFS access controls.

  1. The following terms and definitions apply to this program.

    1. Acquisition cost - The original cost of an asset to the government, which is the amount recorded in the financial and accounting records. This includes all costs incurred to bring the asset to a form and location suitable for its intended use.

    2. Asset - Tangible or intangible items owned by the federal government which would have probable economic benefits that can be obtained or controlled by a federal government entity.

    3. Book value - The net amount at which an asset or a liability is carried on the books (also referred to as carrying value or amount). It equals the gross or nominal amount of an asset or liability minus any allowance or valuation amount.

    4. Capital asset - Land (including park lands), structures, equipment (including motor and aircraft fleets) and intellectual property (including software), that are used by the federal government and that have an estimated useful life of two years or more.

    5. Capitalize - To record and carry forward into one or more future periods any expenditure where the benefits or proceeds will be realized in that future period.

    6. Capital lease - Any lease other than a lease-purchase that does not meet the criteria of an operating lease. Capital leases require full funding.

    7. Commercial Off-The-Shelf (COTS) software - Software that is bought from a vendor and is ready to use with little or no changes.

    8. Criminal Investigation Management Information System (CIMIS) - A database system used by Criminal Investigation (CI) to track asset management activities for the full life cycle of non-IT and sensitive law enforcement equipment from acquisition to disposal.

    9. Deferred maintenance and repairs (DM&R) - Maintenance and repairs that were not performed when they should have been or were scheduled to be and which are put off or delayed to a future period.

    10. Depreciation - The systematic and rational allocation of the acquisition cost of an asset, less its estimated salvage or residual value, over its estimated useful life.

    11. Direct costs - Costs assigned to activities by direct tracing of units of resources consumed by individual activities. A cost that is specifically identified with a single cost object.

    12. Indirect costs - Costs that cannot be identified specifically or traced to a given cost object economically.

    13. Knowledge, Incident/Problem, Service and Asset Management (KISAM) - An inventory system for all accountable IRS property and equipment, except for leasehold improvement, software, investigative equipment, and vehicles. Investigative equipment and vehicles are recorded in CIMIS. The KISAM Asset Manager module is used to track asset management activities for full life cycle of IT hardware and non-IT investigative equipment from acquisition to disposal.

    14. Impairment - A significant and permanent decline in the service utility of general property and equipment, or expected service utility for construction work in process.

    15. Internal use software - Software that is bought from commercial vendors “off-the-shelf,” internally developed, or contractor-developed, solely to meet the entity's internal or operational needs.

    16. Internally developed software - Software that employees are actively developing, including new software and existing or purchased software that is being modified with or without contractor’s assistance.

    17. Lease-purchase - A type of lease where ownership of the asset is transferred to the government at or shortly after the end of the lease term.

    18. Net book value - The net amount where an asset or group of assets is carried on the books. It equals the historical cost (gross amount) of any asset minus any depreciation, amortization, or impairment costs against the asset.

    19. Product Category Code (PCC) - A data element used to group materials and services according to their characteristics. The PCC can point to several Federal Supply Codes (FSC) and the commitment item.

    20. Operating Lease - An agreement conveying the right to use property for a limited time in exchange for periodic rental payments.

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    21. Rehabilitation - The restoration or renovation of serviceable or operable articles to near-new condition or the repair of unserviceable or inoperable articles when the overall aim is to restore or renovate articles to a near-new condition.

    22. Shopping cart - The official PPS requisition document submitted by an end user, a program office or a contracting officer's representative (COR), for acquiring property and equipment, supplies or services through an appointed procurement office.

    23. Service utility - The usable capacity that at acquisition was expected give.

    24. Useful life - The normal expected operating life of an asset.

  1. The following acronyms apply to this program.

    ACRONYMDESCRIPTION
    CIMISCriminal Investigation Management Information System
    COTSCommercial Off-the-Shelf
    FRFinancial Reporting Office
    GAAPGenerally Accepted Accounting Principles
    IFSIntegrated Financial System
    KISAMKnowledge, Incident/Problem, Service and Asset Management
    LHILeasehold Improvements
    OMBOffice of Management and Budget
    SFFASStatement of Federal Financial Accounting Standards

  1. Office of Management and Budget (OMB) Circular No. A-11, Preparation, Submission, and Execution of the Budget

  2. OMB Circular No. A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, Appendix C: Discount Rates for Cost-Effectiveness, Lease-Purchase, and Related Analyses for OMB Circular No. A-94

  3. OMB Circular No. A-136, Financial Reporting Requirements

  4. Bureau of the Fiscal Service, Proprietary Accounting Related Scenarios, Capital and Operating Leases

  5. Statement of Federal Financial Accounting Standards (SFFAS) No. 5, Accounting for Liabilities of the Federal Government

  6. SFFAS No. 6, Accounting for Property, Plant, and Equipment

  7. SFFAS No. 10, Accounting for Internal Use Software

  8. SFFAS No. 42, Deferred Maintenance and Repairs

  9. SFFAS No. 44, Accounting for Impairment of General Property, Plant, and Equipment Remaining in Use

  10. IRM 1.14.4, Personal Property Management

  11. IRM 2.149.1, Asset Management Policy

  12. IRM 2.149.2, Asset Management Process Description

  13. IRM 2.149.3, Asset Management Hardware Procedures

  14. IRM 2.149.4, Asset Management Software Procedures

  15. IRM 9.10.1, Criminal Investigation Management Information System Equipment Inventory

  16. IRM 9.11.3, Investigative Property

  17. Procurement Policy Framework

  18. Financial Management Codes Handbook

  1. This section provides guidance on procuring goods and services.

  1. Users electronically prepare and track shopping carts (requisitions) in the PPS module. The shopping cart must be complete and contain the proper approvals, technical documentation and funding information to be acceptable for processing. The requester, approver and financial plan manager validate the accounting string and ensure the product category code (PCC) complies with the Financial Management Codes Handbook.

  2. The shopping cart process can be found on the Procurement website.

Gaap Inventory Capitalization Rules

Software

  1. Procurement is responsible for the centralized purchase of goods and services for their assigned business units .

    1. Procurement staff use the PPS module to generate shopping cart documents for executing new orders, modifying existing requisitions and obligating funds.

    2. See Procurement Policy Framework for more information.

  1. See IRM 1.35.3, Receipt and Acceptance Guidelines, for more information.

  1. The FR Property and Equipment (P&E) section is responsible for ensuring property and equipment is recorded correctly and presented fairly in all material respects in the financial statements and conforms to U.S. GAAP. This includes:

    1. Budget: The IRS charges property and equipment purchases to appropriations for Taxpayer Services, Enforcement, Operations Support and Business Systems Modernization.

    2. Net cost: FR extracts and compiles capitalized amounts for internal use software that was initially recorded as an operating expense, reclassified asset and expense transactions, and gains and losses on disposals and depreciation.

    3. Financial reporting: The IRS reports net property and equipment on the balance sheet and reports depreciation expense as a program cost on the IRS’s Statement of Net Cost. Costs of property and equipment acquisitions are reported on the Budget and Accrual Reconciliation as resources that fund the acquisition of assets. The IRS reports the present value of capital leases on its the balance sheet. Download ubuntu 10.04 32 bit.

  2. The IRS uses standard capitalization methods and thresholds for property and equipment unless otherwise noted.

  1. This section provides reporting guidance for the capitalization and depreciation of property and equipment.

  2. Per SFFAS No.6, Accounting for Property, Plant, and Equipment, assets must meet the following criteria to be capitalized:

    1. Have an estimated useful life of two or more years.

    2. Not be intended for sale in the ordinary course of operations.

    3. Be acquired, constructed or developed with the intention of being used or available for use by IRS employees or contractors.

  3. Property and equipment categories consist of:

    1. IT equipment

    2. Internally developed software/internal use software

    3. Leasehold improvements (LHI)

    4. Major systems

    5. Vehicles

    6. Furniture and non-IT equipment

    7. Assets under capital lease

    8. Laboratory or forensic equipment

  4. The useful life of an asset considers factors such as physical wear and tear and technological changes that affect the asset’s economic usefulness. The thresholds represent the dollar value at which an asset is capitalized. Purchases less than the dollar value thresholds are recorded expense in IFS.

  5. The following table summarizes the threshold value and useful life for each type of property and equipment:

    Note:

    The IRS generally purchases IT equipment in bulk. All capitalization threshold levels consider this practice. Individual purchases lower than $50,000 are generally expensed.

    EQUIPMENTTHRESHOLD VALUEUSEFUL LIFE
    Mainframe Computer Systems and ServersCost of equipment and other charges to put the asset into service is ≥ $50,0007 years
    Laptops and DesktopsCost of equipment and other charges to put the asset into service is ≥ $50,0003 years
    Telecommunications EquipmentCost of equipment and other charges to put the asset into service is ≥ $50,0007 years
    Non-IT EquipmentBulk purchases ≥ $50,000 or per unit cost ≥ $5,000 and that have a useful life of two or more years and are barcoded10 years
    Furniture and FixturesCost of furniture and fixtures and other charges to put the asset into service is ≥ $50,000 and the individual dollar amount of the specific item is ≥ $5,0008 years
    Internal Use SoftwareProjects with an estimated cost ≥ $10 million per year or ≥ $50 million over the life cycle of the softwareAssessed case by case based on varying criteria
    Software LicensesWhen the dollar amount of the award line is ≥ $50,000Mainframe software licenses: 7 years
    Server software licenses: 7 years
    Laptop/desktop software licenses: 3 years
    Telecommunications software licenses: 7 years
    Laboratory or Forensic EquipmentCost of equipment and other charges to put the asset into service is ≥ $50,00010 years
    VehiclesAll5 years
    Leasehold ImprovementsAmount of the award line is ≥ $50,00010 years or the remaining life of the lease, whichever is shorter
    Assets under Capital LeaseAmount of the award line is ≥ $50,000Assessed case by case based on varying criteria

Accounting Treatment for Information Technology Equipment and Software

  1. IT equipment generally consists of mainframes, servers, laptops and desktops, and telecommunications equipment.

  2. The IRS does not capitalize IT accessories including monitors, keyboards, mice, hard drives, memory upgrades, braille equipment and other miscellaneous components when purchased separately.

  3. The following table summarizes when to capitalize or expense IT equipment.

    EQUIPMENT/ITEMCAPITALIZE EXPENSE
    Maintenance and Warranty✓
    Mainframe Computer System and printers≥ $50,000< $50,000
    Laptops and Desktops≥ $50,000< $50,000
    Servers≥ $50,000< $50,000
    Storage systems for servers✓
    IT Peripherals✓
    Shipping, installation and configuration✓✓
    Telecommunications Equipment≥ $50,000< $50,000
    Voice and data telecommunications equipment✓✓
    Dedicated servers for telecommunications equipment✓✓
    Video teleconferencing (VTC) equipment✓✓
    Cryptologic equipment✓✓
    Security equipment✓✓
    Asset tagging✓✓
    Shipping, installation and configuration✓✓
    All purchases of telecom peripherals regardless of dollar amount.✓
    All relocation and reinstallation of communications equipment, regardless of dollar amount.✓
    All purchase, installation and removal of wiring, regardless of amount.✓

  1. The IRS capitalizes the cost of non-IT equipment when the bulk purchase of the item or items being ordered, including the costs to bring an asset to a form and location suitable for its intended use (i.e. components, shipping, installation, configuration, asset tagging, etc.), is equal to or greater than $50,000, or an individual item has a value equal to or greater than $5,000 and is barcoded.

  2. Capitalized non-IT equipment is depreciated over a useful life of 10 years. Non-IT equipment includes, but is not limited to:

    1. Automated file storage equipment

    2. Equipment for producing, storing and viewing microforms

    3. Document processing equipment for photocopies, mail and check handling, and shredders

    4. Television studio, cameras and other photographic equipment

    5. Printing and binding equipment

    6. Office equipment, devices and machines other than IT equipment

    7. Uninterruptible power supplies (UPS)

  3. The FMSS territory staff maintains inventory records for non-IT equipment and is responsible for updating inventory records for final asset disposition.

  4. The following table summarizes when to capitalize or expense non-IT equipment:

    EQUIPMENTCAPITALIZEEXPENSE
    Non-IT EquipmentBulk purchases ≥ $50,000 or per unit cost ≥ $5,000 and that have a useful life of two or more years and are barcodedBulk purchases < $50,000 or per unit cost < $5,000
    All TV sets and sound recording/reproduction equipment, regardless of dollar threshold✓
    Data projectors✓
    Global Positioning System (GPS) equipment✓
    Heavy duty stapling machines✓
    Typewriters✓
    Walkie talkies✓

  1. The IRS capitalizes the acquisition of furniture and fixtures when the bulk purchase of the item or items being ordered, including the costs to bring an asset to a form and location suitable for its intended use (i.e. components, shipping, installation, configuration, asset tagging, etc.), is equal to or greater than $50,000, or an individual item has a value equal to or greater than $5,000 and is barcoded, including office and system furniture, case goods, shelving, and artwork.

  2. The following table summarizes when to capitalize or expense furniture and fixtures:

    EQUIPMENTCAPITALIZEEXPENSE
    Furniture and FixturesBulk purchases ≥ $50,000 or per unit cost ≥ $5,000 and that have a useful life of two or more years and are barcoded
    Bank card purchases✓
    Operating furniture lease payments✓
    Reasonable accommodation furniture✓

  1. Internal use software consists of COTS software and internally developed software and is capitalized under SFFAS No. 10, Accounting for Internal Use Software and FASAB Technical Release 16, Implementation Guidance For Internal Use Software.

  2. For internally developed software, the IRS determines the useful life for each project and then amortizes the value over the useful life period. COTS software acquisitions are amortized over the useful life of the type of IT machine on which the software will run.

  3. The IRS IT Governance and Executive Steering Committee monitors and certifies the project life cycle milestones.

  4. The IRS uses the following criteria to identify major internally developed software projects subject to capitalization:

    1. The project/program that the software is intended to support must have a total annual budget of $10 million or greater during any one year or estimated cumulative project costs over $50 million over the five-year period of performance.

    2. The project/program must be identified as a “Major Project” according to the IT dashboard submitted by the Department of the Treasury for all bureaus.

    3. The project/program must be for new systems or major enhancements to existing systems.

  5. Any IT or non-IT equipment bought in conjunction with a capitalized internal use software project is capitalized as IT equipment or non-IT equipment.

  6. The IRS monitors capitalizable costs for internal use software in an in-development account until final acceptance testing has been successfully completed and the software is in use. Once this process is completed, the IRS transfers the costs from the in-development account to the deployed systems account and amortization begins. The IRS expenses costs incurred after final acceptance testing has been successfully completed.

  7. Disposals are recognized when software is determined to be obsolete or nonfunctional following SFFAS No. 10, Accounting for Internal Use Software. The IRS treats terminated projects or subprojects as 100 percent obsolete. The IRS adjusts obsolete projects to lower both the asset and amortization accounts and records any losses as the result of the disposal.

  8. The following table summarizes when to capitalize or expense internal use COTS:

    SOFTWARE CAPITALIZEEXPENSE
    Software - Mainframes/ServersAward line ≥ $50,000 and has a useful life of two or more years
    Depreciation using an internally determined useful life✓
    One-year renewals and maintenance✓
    Operating leases of software licenses✓
    Software support✓
    Software - End UserAward line ≥ $50,000 and has a useful life of two or more years
    Software support✓
    Operating leases of software licenses, including one year renewals and subscriptions✓
    Software - TelecommunicationsAward line ≥ $50,000 and has a useful life of two or more years
    Depreciation✓

  1. The following table summarizes when to capitalize or expense investigative or forensic equipment:

    EQUIPMENTCAPITALIZEEXPENSE
    Investigative or Forensic EquipmentCost of equipment and other charges to put the asset into service is ≥ $50,000
    Depreciation✓
    Enforcement Equipment✓

  1. LHI are non-routine repairs and alterations to leased property that extend the useful life of leased space or increase the usefulness of the building and leased space including:

    1. Building alterations.

    2. Additions that become permanently attached to or part of a building, including plumbing, power-plant boilers, fire alarm systems, refrigerating systems, security systems, flooring, or carpeting.

    3. Improvements to land including landscaping, fences, sewers and parking lots.

  2. The IRS capitalizes costs for LHI that are equal to or greater than $50,000 per award line.

  3. The IRS tracks LHI capitalizable costs in a construction-in-progress account until notified by FMSS that the project has reached “phase 6 - Relocation (Delivery of the project to the customer)”.

  4. LHI is amortized over 10 years or the remaining life of the lease, whichever is shorter.

  1. The IRS will capitalize leases following SFFAS No. 5, Accounting for Liabilities of the Federal Government, and OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget.

  2. The amount capitalized is the lesser of the Net Present Value (NPV) or the fair market value of the asset. The IRS calculates the NPV by using the nominal interest rates published in OMB Circular No. A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, specifically located in Appendix C: Discount Rates for Cost-Effectiveness, Lease-Purchase and Related Analyses for OMB Circular No. A-94, or Table of past Years Discount Rates from Appendix C of OMB Circular No. A-94, for the interest rate in effect at the time of acquisition.

  3. A lease is classified as a capital lease when the award line is equal to or greater than $50,000, the contract is two or more years, and the lease satisfies at least one of the following criteria:

    1. The lease transfers ownership of the personal property to the lessee by the end of the lease term.

    2. The lease contains an option to buy the leased property at a bargain price.

    3. The lease term is equal to or greater than 75 percent of the estimated useful life of the leased property.

    4. The NPV equals or exceeds 90 percent of the fair market value of the leased property. The NPV excludes the part of payments representing insurance, maintenance and taxes.

  4. When criteria a or b is met, the IRS depreciates an asset under a capital lease over the useful life of that asset using a half-year convention. When criteria c or d is met, the IRS depreciates the asset over the term of the lease.

  5. The IRS funds the NPV of capital leases in the first year, following OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget. Capital leases with another agency are funded annually, per the Bureau of the Fiscal Service, Proprietary Accounting Related Scenarios, Capital and Operating Leases.

  1. The IRS does not capitalize property and equipment bought and held by the Treasury Franchise Fund (TFF). Depreciation of TFF allocated to the IRS by Treasury is based on pro rata share of usage.

  1. Vehicles are purchased or leased.

  2. Purchased vehicles are capitalized and depreciated over a five-year useful life.

  3. Vehicle leases are analyzed to determine if they are classified as a capital lease or an operating lease and follow IRM 1.35.6.4.7, Assets Under Capital Lease, criteria.

  1. This section provides information on systems used for inventorying assets.

  1. KISAM and CIMIS are inventory systems that are used to record and track property and equipment. These systems are not integrated into IFS.

  2. The KISAM Asset Manager module is used to record and manage property and equipment from the time it is received at IRS premises from a vendor or other external source until the time of its disposal or transfer out of IRS. IRS users must enter receipt and acceptance information about acquired assets in both KISAM and IFS. See KISAM guidelines in: Asset Management IRM Policies and Procedures. See IRM 1.35.5 Receipt and Acceptance Guidelines.

  3. CI tracks all investigative equipment and CI vehicles in CIMIS. See CIMIS guidelines in IRM 9.10.1, Criminal Investigation Management System Equipment Inventory.

IT Equipment Distribution for Refreshment vs. Equipment Repurpose

  1. The IRS issues standard policies for customer equipment (laptop/desktop) refreshment and gives guidance for the best use of equipment that is not new but still within warranty.

  2. See the Asset Management - Hardware User Guide on the Asset Management IRM Policies and Procedures website for more information.

  1. In order to comply with Department of the Treasury, Interagency Security Committee (ISC), and IRS protection standards and policies, the IRS has established physical security protection methods.

  2. See the physical security policy, Methods of Providing Protection, for more information.

  3. All inventory staff must use secured storage space for restricted inventory. The storage area should be large enough to store assets from incoming shipments, and assets that are in the process of being excessed and shipped out. There should also be enough space to secure in stock inventories.

  1. IRM 1.14.4, Personal Property Management, specifies that no employee can be responsible for two or more of the following duties: acquiring property, receiving property, and recording property in inventory.

Software Capitalization Vs Expense

  1. FR performs a reconciliation to ensure that capitalized property and equipment transactions equal to or greater than $50,000 in IFS are properly recorded in KISAM.

Gaap Purchased Software Capitalization Rules Saas

  1. Federal agencies must fulfill property needs through redistribution, repair, or rehabilitation of already-owned furniture and office equipment.

  2. The General Services Administration, Regional Federal Supply Schedule offices, assist federal agencies in the best use of personal property by providing maintenance, repair and rehabilitation services. The services are through contracts with commercial firms, agreements with the National Industries for the Blind, and with federal repair facilities like those supplied by the Federal Prison Industries.

  3. See IRM 1.14.4, Personal Property Management; IRM 2.149.1, Asset Management Policy; IRM 2.149.2, Asset Management Process Description; IRM 2.149.3, Asset Management Hardware Procedures; IRM 2.149.4, Asset Management Software Procedures; and IRM 9.11.3, Investigative Property; for procedures and guidelines for the maintaining repairing property and equipment.

Gaap Capitalization Of Software Licenses

  1. The disposal process removes property and equipment due to obsolescence, loss, theft, damage or erroneous records.

  2. User Network Services (UNS) and CI send disposal information from KISAM and CIMIS to FR. FR analyzes the information quarterly and compares it to what is recorded in IFS. Additional analysis is performed at year-end for assets older than 10 years. Adjustments are recorded for balances in KISAM or CIMIS that are lower than in IFS.

  3. See IRM 1.14.4, Personal Property Management; IRM 2.149.1, Asset Management Policy; IRM 2.149.2, Asset Management Process Description; IRM 2.149.3, Asset Management Hardware Procedures; IRM 2.149.4, Asset Management Software Procedures; IRM 9.10.1, Criminal Investigation Management Information System Equipment Inventory; and IRM 9.11.3, Investigative Property; for disposals of IRS property and equipment.

  4. FR completes a quarterly analysis for missing assets.