United States Government Accountability Office GAO November 2011 Report to the Secretary of the Treasury_PART6 pot

Financial Statements
Page 67 GAO-12-165 IRS’s Fiscal Years 2011 and 2010 Financial Statements




INTERNAL REVENUE SERVICE
Notes to the Financial Statements
For the Years Ended September 30, 2011 and 2010
9
Abatements
Section 6404 of the Internal Revenue Code (26 USC), authorizes the Commissioner of the IRS to
abate certain paid or unpaid portions of assessed taxes, interest, and penalties. Abatements occur for a
number of reasons and are a standard part of the tax administration process.
Abatements may be allowed for qualifying corporations claiming net operating losses which create a
credit when carried back and applied against a prior year’s tax liability. Additionally, abatements can
correct previous assessments from enforcement programs, eliminate taxes discharged in bankruptcy,
reduce or eliminate taxes encompassed in offers in compromise, eliminate penalty assessments for
reasonable cause, eliminate contested assessments made due to mathematical or clerical errors and
eliminate assessments contested after the liability has been satisfied. Abatements may result in claims
for refunds or a reduction of the unpaid assessed amount.
G. Property and Equipment
Property and equipment is recorded at historical cost. It consists of tangible assets and software. The
IRS depreciates property and equipment on a straight line basis over its estimated useful life. In the
first and final years, one-half year depreciation is taken. Disposals are recorded when deemed
material.
The IRS capitalization policy for property and equipment is presented by asset class and capitalization
threshold.
Asset Class Capitalization Threshold
ADP equipment Capitalized regardless of acquisition cost
Non-ADP equipment Assets with bulk cost of $50 thousand or greater

Furniture Capitalized regardless of acquisition cost
Investigative equipment Assets with bulk cost of $50 thousand or greater
Vehicles Capitalized regardless of acquisition cost
Major systems Projects with costs of $20 million or greater
Internal Use Software
Major business systems modernization projects with an estimated cost of
$5 million per year or $50 million over the life cycle.
Leasehold Improvements Improvements with bulk cost of $50 thousand or greater
Assets under capital lease
Assets with bulk cost of $50 thousand or greater
ADP Equipment includes related commercial off-the-shelf (COTS) software with a bulk cost of
$50 thousand or greater. Major systems was a category for large-scale computer systems prior to
Statement of Federal Financial Accounting Standards No. 10 (SFFAS No. 10), Accounting for Internal
Use Software. Prior to fiscal year (FY) 2011, the IRS capitalized COTS software and leasehold
improvements regardless of cost, and furniture, non-ADP equipment and investigative equipment with
an individual asset cost of $5 thousand or greater.
Internal Use Software captures the costs of major Business Systems Modernization projects in
accordance with SFFAS No. 10. It encompasses software design, development and testing of projects
adding significant new functionality and long-term benefits. Costs for developing internal use
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