1.35.6  Property and Equipment Accounting

1.35.6.1  (10-01-2010)
Overview

  1. This Internal Revenue Manual (IRM) provides policies and procedures for recording transactions and for maintaining accountability over property and equipment.

  2. The Chief Financial Officer (CFO), Internal Financial Management (IFM) Unit, Office of Financial Management Policy, develops and maintains this IRM.

1.35.6.2  (10-01-2010)
Background

  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). FASAB is responsible for promulgating accounting standards for the United States Government. These standards are recognized as generally accepted accounting principles (GAAP) for the Federal Government. To ensure compliance with FASAB, it is critical that the IRS complies with applicable Federal financial accounting standards for all property and equipment.

  2. The IRS established a base cost for all property and equipment as of September 30, 1999, based on 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 is 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 reviews the "useful life" categories to verify that they are reasonable and makes changes when appropriate.

1.35.6.3  (10-01-2010)
Authority

  1. The authorities for these policies are:

    1. Chief Financial Officers Act of 1990, Pub. L. No. 101-576, section 902.

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

    3. 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.

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

    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.

1.35.6.4  (10-01-2010)
Related Resources

  1. IRM 1.14.4, Personal Property Management, Real Estate and Facilities Management.

  2. IRM 2.14.1, Asset Management, Information Technology (IT) Asset Management.

  3. IRM 9.10.1, Criminal Investigation Equipment Control System.

  4. IRM 9.11.3, Investigative Property.

  5. Procurement Policy and Procedures Memos.

  6. Financial Management Codes Handbook.

1.35.6.5  (10-01-2010)
Definitions

  1. In this IRM, the terms below have the following meanings:

    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 - an item that embodies a probable future economic benefit that can be obtained or controlled by the Federal Government or a reporting entity as a result of past transactions or events.

    3. Book Value - the net amount at which an asset or group of assets is carried on the books of account. It equals the gross amount of any asset minus any depreciation, amortization, or impairment costs made against the asset.

    4. Capital Asset - an asset including land, structures, equipment, and intellectual property (including software) that has an estimated useful life of greater than two years.

    5. Capitalize - to record and carry forward into one or more future periods all or any part of expenditures from which the benefits or proceeds will be realized.

    6. Capital Lease - any lease other than a lease-purchase that transfers substantially all the benefits and risks of ownership to the lessee and does not meet the criteria of an operating lease. Capital leases require full funding.

    7. Commercial Off-The-Shelf (COTS) item - any item, other than real property, that is of a type customarily used by the general public for nongovernmental purposes and (1) has been sold, leased, or licensed to the general public; (2) is sold, leased, or licensed in substantial quantities in the commercial marketplace; and (3) is offered to the Federal Government, without modification, in the same form in which it is sold, leased, or licensed in the commercial workplace.

    8. Criminal Investigation Management Information System (CIMIS) - a management and information system to track investigative equipment specifically acquired for and used by Criminal Investigation (CI) to carry out its investigative and enforcement functions. It is also used to track the status and progress of CI investigations and time expended by CI employees.

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

    10. Direct Cost - costs incurred by the IRS that can be specifically identified with a single cost object (program, activity, or output). Such costs include salaries, other benefits, materials, and supplies used in the workplace.

    11. Exhibit 300 - a document used to demonstrate to agency management and OMB that the agency has employed the disciplines of good project management, presented a strong business case for a project, and met other administrative priorities to define the proposed cost, schedule, and performance goals for the project. Federal agencies must submit Exhibit 300 for each project or initiative to OMB as part of the annual budget submission process required by OMB Circular A-11, Preparation, Submission, and Execution of the Budget.

    12. Federal Supply Code (FSC) - a data element used to represent a general classification of inventory items based on the General Services Administration (GSA) Federal Supply Classification System.

    13. Indirect Cost - costs that cannot be directly linked to a program or activity. These are allocated or assigned to the cost object using one or more appropriate methods.

    14. Information Technology Asset Management System (ITAMS) - an inventory system for all accountable IRS property and equipment, except for leasehold improvements, software, and investigative equipment and vehicles. Investigative equipment and vehicles are recorded in CIMIS.

    15. Internal Use Software - software that is purchased off-the-shelf, internally developed, or contractor-developed solely to meet the entity's internal needs.

    16. Internally Developed Software - software that employees of the entity are actively developing, including new software and existing or purchased software that is being modified with or without the assistance of contractors.

    17. Lease-Purchase - a type of lease in which ownership of the asset is transferred to the Government at or shortly after the end of the lease term.

    18. Material Group Code (MGC) - a data element used to group materials and services according to their characteristics. The material group code can point to several Federal Supply Codes and the commitment item.

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

    20. 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 objective is to restore or renovate articles to a near-new condition.

    21. Requisition - the official document submitted by an end user, a requesting or program office or a Contracting Officer's Technical Representative (COTR), for the purpose of acquiring supplies or services through a designated procurement office.

    22. Separation of Duties - a key internal control concept under which no single individual has complete control over a financial transaction from beginning to end.

    23. Useful Life - an estimate of the average number of years an asset is considered usable before its value is fully depreciated.

1.35.6.6  (10-01-2010)
Acronyms

  1. The following chart contains acronyms that are used throughout this IRM.

    ACRONYM DESCRIPTION
    ACD Automated Call Distribution
    AMPO Asset Management Program Office
    AWSS Agency-Wide Shared Services
    BFC Beckley Finance Center
    CEA Computer Equipment Analyst
    CI Criminal Investigation
    CIMIS Criminal Investigation Management Information System
    CO Contracting Officer
    COTS Commercial Off-the-Shelf
    EKTS Electronic Key Telephone Systems
    FASAB Federal Accounting Standards Advisory Board
    FMP Office of Financial Management Policy
    FPM Financial Plan Manager
    FSC Federal Supply Code
    GAAP Generally Accepted Accounting Principles
    GAO Government Accountability Office
    GPS Global Positioning System
    I/O Input/Output
    IFM Internal Financial Management
    IFS Integrated Financial System
    IT Information Technology
    ITAMS Information Technology Asset Management System
    MEG Modernization and Information Technology Services Enterprise
    MGC Material Group Code
    MITS Modernization and Information Technology Services
    MOU Memorandum of Understanding
    OFR Office of Financial Reports
    OMB Office of Management and Budget
    REFM Real Estate and Facilities Management
    SDI Secure Dial-In
    SFFAS Statement of Federal Financial Accounting Standards
    SPIF Single Point Inventory Function
    UPS Uninterruptible Power Supplies
    VMS Voice Mail Systems
    VTC Video Teleconferencing
    WCF Working Capital Fund
    webIPS Web Integrated Procurement System
    webRTS Web Requisition Tracking System

1.35.6.7  (10-01-2010)
Responsibilities

  1. This section provides responsibilities for:

    1. Chief Financial Officer (CFO).

    2. Associate CFO for Internal Financial Management (IFM).

    3. Beckley Finance Center (BFC).

    4. Office of Financial Reports (OFR).

    5. Office of Financial Management Policy (FMP).

    6. Chief, Agency-Wide Shared Services (AWSS).

    7. Director, Real Estate and Facilities Management (REFM), AWSS.

    8. Director, Office of Procurement, AWSS.

    9. Modernization and Information Technology (MITS) Asset Management Program Office (AMPO).

    10. MITS Area Directors.

    11. MITS IT Specialists/Lead Territory Single Point Inventory Function (SPIF)/Computer Equipment Analysts (CEA).

    12. Chief, Criminal Investigation (CI).

    13. CI Director, Field Operations.

    14. CI Field Offices.

    15. Criminal Investigation Management Information System (CIMIS) Equipment Control System Coordinator.

    16. Business Units.

1.35.6.7.1  (10-01-2010)
Chief Financial Officer (CFO)

  1. The CFO is responsible for:

    1. Providing Servicewide accountability of property, equipment, and capital leases.

    2. Ensuring proper recording of transactions on the financial statements.

1.35.6.7.2  (10-01-2010)
Associate CFO for Internal Financial Management (IFM)

  1. The Associate CFO for IFM is responsible for:

    1. Establishing, maintaining, and ensuring compliance with accounting policy and procedures for internal accounting operations and financial reporting.

    2. Providing guidance and policy to business units and offices on property and equipment accounting.

1.35.6.7.3  (10-01-2010)
Beckley Finance Center (BFC)

  1. Beckley Finance Center (BFC) is responsible for conducting initial reviews of property, equipment, and maintenance for a subset of transactions.

1.35.6.7.4  (10-01-2010)
Office of Financial Reports (OFR)

  1. The Office of Financial Reports (OFR) is responsible for:

    1. Complying with applicable Federal financial accounting standards.

    2. Reviewing and approving the initial reviews of property, equipment, and maintenance performed by BFC.

    3. Reviewing software transactions, leasehold improvements, and a subset of maintenance transactions for accuracy of classification.

    4. Recording entries to capitalize internally developed software, capital leases, and transactions that have been incorrectly expensed.

    5. Recording entries to reclassify transactions incorrectly recorded as an asset.

    6. Depreciating and amortizing property and equipment.

    7. Ensuring proper financial recording for disposals of property and equipment.

1.35.6.7.5  (10-01-2010)
Office of Financial Management Policy (FMP)

  1. The Office of Financial Management Policy (FMP) is responsible for:

    1. Providing clarifying guidance and assistance on accounting policy matters.

    2. Assisting managers and other employees in interpreting and applying policies.

1.35.6.7.6  (10-01-2010)
Chief, Agency-Wide Shared Services (AWSS)

  1. The Chief, Agency-Wide Shared Services (AWSS) is responsible for:

    1. Providing central oversight and guidance for the management of property and equipment.

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

    3. Establishing and issuing uniform property and equipment policies.

    4. Providing internal control reviews of property and equipment.

1.35.6.7.7  (10-01-2010)
Director, Real Estate and Facilities Management (REFM), AWSS

  1. The Director, Real Estate and Facilities Management (REFM), AWSS, is responsible for establishing Servicewide policy, procedures, standards, and guidelines for procurement and the use of furniture and equipment to enable the IRS to perform its function efficiently and economically.

1.35.6.7.8  (10-01-2010)
Director, Office of Procurement, AWSS

  1. The Director, Office of Procurement, AWSS, is responsible for:

    1. Planning, directing, coordinating, and controlling the procurement program for the IRS.

    2. Ensuring all contractual commitments for equipment, goods and/or services are made within the framework of Federal and Departmental statues and regulations, internal policy, and sound business judgement.

    3. Procuring in a timely, ethical manner goods and/or services that meet the needs of the IRS, providing the best value to the Government.

1.35.6.7.9  (10-01-2010)
Modernization and Information Technology (MITS) Asset Management Program Office (AMPO)

  1. The MITS Asset Management Program Office (AMPO) is responsible for:

    1. Providing oversight, coordination, and guidance on the asset management of IT equipment Servicewide within the Information Technology Asset Management System (ITAMS).

    2. Performing analyses of the ITAMS database and identifying anomalous records.

    3. Developing business rules for asset management processes.

    4. Developing and improving processes for asset management and control.

    5. Providing direction to the Single Point Inventory Function (SPIF).

    6. Serving as the SPIF-vendor liaison that coordinates activities between the vendors and the territory offices.

1.35.6.7.10  (10-01-2010)
MITS Area Directors

  1. MITS Area Directors are responsible for:

    1. Appointing property managers to maintain accountability of IT equipment within their organizations.

    2. Ensuring that property managers have proper oversight and knowledge of the IT equipment used within their organizations.

    3. Ensuring that property managers are provided with the necessary access to computer hardware/software and telecommunications equipment.

    4. Ensuring that each site has the proper resources to support IT property management.

    5. Certifying that site ITAMS inventory records are correct and accurate.

1.35.6.7.11  (10-01-2010)
MITS IT Specialists/Lead Territory SPIF/Computer Equipment Analysts (CEA)

  1. MITS IT Specialists/Lead Territory SPIF/Computer Equipment Analysts (CEA) are responsible for:

    1. Participating in physical inventories of IT property and assisting in follow-up actions.

    2. Investigating all requests for adding and disposing of equipment.

    3. Monitoring ITAMS to ensure records are current and accurate.

    4. Conducting reviews and providing information regarding the status of the inventory.

    5. Providing assistance to the property manager.

    6. Analyzing and providing solutions to problem issues reported as related to IT property inventory matters.

    7. Documenting inventory results for submission to the property manager.

1.35.6.7.12  (10-01-2010)
Chief, Criminal Investigation (CI)

  1. The Chief, Criminal Investigation (CI), is responsible for:

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

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

    3. Providing an electronic extract of Criminal Investigation Management Information System (CIMIS) data to various requesters when required.

    4. Allocating equipment to field offices.

    5. Fulfilling all functions of a property manager including accountability, recordkeeping, disposal, etc.

    6. Coordinating procurement programming with Procurement.

1.35.6.7.13  (10-01-2010)
CI Director, Field Operations

  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 assistance to the field office equipment coordinators within their area.

1.35.6.7.14  (10-01-2010)
CI Field Offices

  1. CI Field Offices are responsible for maintaining an accurate record of all investigative equipment, investigative accessories, and investigative supplies.

1.35.6.7.15  (10-01-2010)
Criminal Investigation Management Information System (CIMIS) Equipment Control System Coordinator

  1. The CIMIS Equipment Control System Coordinator is responsible for:

    1. Ensuring all new users and the CIMIS User Administrator are granted CIMIS equipment user access and have all the information necessary to successfully request user access.

    2. Ensuring all users are aware of security procedures.

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

    4. Completing a physical inventory of investigative equipment by August 31 every year and submitting the inventory report by September 25 to the Director, Security and Technical Operations.

    5. Contacting the National CIMIS Equipment Coordinator to verify any equipment on loan to the field office prior to conducting the annual inventory or whenever an employee is transferred or separated from CI.

1.35.6.7.16  (10-01-2010)
Business Units

  1. Business units are responsible for:

    1. Complying with all established policies and procedures relating to property and equipment.

    2. Processing and recording transactions including, but not limited to, those relating to property and equipment, such as entering Federal Supply Codes and Material Group Codes.

    3. Performing all appropriate actions related to property and equipment.

    4. Exercising reasonable care in property and equipment use to prevent damage and maintain good condition.

    5. Taking reasonable security precautions to discourage loss, theft, or misuse of property and equipment.

1.35.6.8  (10-01-2010)
Acquisition of Goods and/or Services

  1. This section provides guidance on the procedures relating to the acquisition of goods and/or services.

1.35.6.8.1  (10-01-2010)
Requisition Process

  1. The Web Requisition Tracking System (webRTS) is a procurement system which allows users to electronically prepare and track requisitions through an approval path specific to the user. The requisition must be complete and contain the proper approvals, technical documentation, and funding information in order to be acceptable for processing. The requester/approver/financial plan manager specifies the accounting string ensuring that the MGC complies with the Financial Management Codes Handbook. To ensure the accuracy of the IRS financial reports, it is imperative that business units use the correct MGC.

  2. WebRTS interfaces the commitment into the Integrated Financial System (IFS) and electronically routes the requisition to the Financial Plan Manager (FPM). The FPM ensures the accounting string and MGCs are correct and associated funds are available. If the accounting string is not correct or if funds are not available, the FPM returns the requisition to the requester for corrections. If the accounting string is correct and funds are available, the FPM approves the requisition and webRTS interfaces the requisition into the web Integrated Procurement System (webIPS).

  3. Procurement verifies that the MGC in the accounting string is correct. If the MGC code is not correct, Procurement returns the requisition to the FPM for corrections. If the MGC is correct, Procurement proceeds with executing the order and the obligation is interfaced into IFS.

  4. If a dispute over the MGC arises between the FPM and Procurement, the business unit and/or Procurement contacts OFR to determine the correct MGC.

  5. Additional information concerning the requisition process can be found on the Procurement website.

1.35.6.8.2  (10-01-2010)
Procurement Process

  1. The Office of Procurement is responsible for the centralized purchase of goods and/or services for the business units within their respective assigned geographic areas. WebIPS provides the Office of Procurement personnel with a single automated system that generates procurement documents and interfaces with IFS and webRTS. Approved requisition information interfaced from webRTS to webIPS starts the procurement process; which then allows the Procurement Office to place and execute orders, modifications, and contracts, thereby obligating funds.

  2. When the requisition is interfaced with webIPS, webIPS routes it to the correct office and Procurement Division based on the geographic region designator and the Federal Supply Codes (FSC)/Material Group Codes (MGC). The business unit assigns the FSC. Management then assigns the requisition to the Contracting Officer (CO).

  3. The CO is responsible for:

    1. Ensuring the requirements are defined and documented properly.

    2. Verifying the MGCs within the accounting string are correct.

    3. Preparing and completing the acquisition processes in compliance with Procurement Policy and Procedures. Specific requirements can be found on the Procurement Policy and Procedures website.

    4. Approving award documents through webIPS.

  4. The Procurement Office prepares the award documents (such as contracts, purchase orders, and delivery orders) within webIPS and sends this information to IFS through the daily webIPS/IFS interface to obligate funds in IFS.

1.35.6.8.3  (10-01-2010)
Receipt and Acceptance Process

  1. The business unit acknowledging receipt of goods and/or services is responsible for entering an automated receipt and acceptance in webRTS or forwarding manual notification to BFC. Business units are required to perform receipt and acceptance regardless of whether a partial or fully completed order has been received.

  2. Business units should complete receipt and acceptance within seven business days of receiving the goods and/or services, unless the contract specifies a longer period of time or there are unresolved issues with the goods and/or services that the vendor delivered.

  3. The receipt and acceptance and payment transactions recorded as property and equipment in IFS are linked to the individual property and equipment hardware items recorded in CIMIS and ITAMS through the requisition and contract purchase order numbers recorded in CIMIS, ITAMS, and webRTS/webIPS.

  4. Additional information on Receipt and Acceptance can be found in the Receipt and Acceptance Handbook.

1.35.6.9  (10-01-2010)
Recording Property and Equipment Transactions

  1. Correctly recording all actual and estimated fiscal year property and equipment transactions help ensure that the IRS presents the financial statements fairly in all material respects, in conformance with the United States generally accepted accounting principles. 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: OFR extracts and compiles capitalized amounts for internal use software that was initially recorded as operating expenses, reclassified miscoded asset and expense transactions, gains and losses on disposals, and depreciation.

    3. Financial Reporting: The IRS reports Property and Equipment, Net, on the balance sheet and reports depreciation expense as program costs on the IRS Statement of Net Cost, and as a component not requiring or generating resources on the Reconciliation of Net Cost of Operations to Budget. The IRS reports the cost of property and equipment acquisitions on the Reconciliation of Net Cost of Operations to Budget as resources that finance the acquisition of assets. The IRS reports the present value of capital leases as a liability on the balance sheet.

  2. The Office of Financial Reports (OFR) located within the Chief Financial Officer, Internal Financial Management unit, reviews property and equipment balances and transactions $50,000 and greater on a monthly basis. Each month, OFR makes adjustments to the accounts to reflect capitalization and depreciation of property and equipment in accordance with Federal financial accounting standards. OFR reviews disposals monthly for loss materiality. Disposals are considered material if the cumulative loss exceeds a materiality threshold of $1 million during the year. Disposals of furniture, equipment, leasehold improvements, and vehicles are recorded in IFS at yearend.

  3. OFR capitalizes property and equipment which has a useful life greater than two years and is owned by the IRS. The IRS depreciates its property and equipment using the straight-line method. The IRS records a half-year of depreciation in the first year and in the final year for all property and equipment, except for property and equipment under a capital lease.

  4. Unless otherwise noted, the IRS does not have a separate capitalization threshold for individual property and equipment or bulk purchases.

1.35.6.10  (10-01-2010)
Property and Equipment Capitalization

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

  2. Property and equipment assets consist of:

    1. IT Equipment.

    2. Furniture.

    3. Other Equipment.

    4. Internally Developed Software.

    5. Internal Use Software.

    6. Laboratory/Forensic Equipment.

    7. Leasehold Improvements.

    8. Capital Leases.

    9. Working Capital Fund (WCF).

    10. Vehicles.

  3. In order for the IRS to record an asset as a capitalized asset, the asset must meet the following criteria:

    1. Have an estimated useful life of greater than two 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 the IRS.

  4. The useful life of an asset is that period during which the asset provides benefits. Estimates of useful life consider factors such as physical wear and tear and technological changes that bear on the economic usefulness of the asset. The thresholds represent the dollar value at which an asset is capitalized. Purchases at less than the dollar value thresholds are treated as expenditures.

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

    EQUIPMENT THRESHOLD VALUE USEFUL LIFE
    Mainframe Computer System No threshold 7 years
    Server 7 years
    Laptop and Desktop 3 years
    Telecommunications Equipment 7 years
    Furniture No threshold 8 years
    Other Equipment Purchases of Other Equipment greater than or equal to $50,000 per requisition funding line 10 years
    Internally Developed Software Projects with an estimated cost of $5 million per year or $50 million over the life cycle > 2 years
    Internal Use Software Purchases of Internal Use Software greater than or equal to $50,000 per requisition funding line > 2 years
    Laboratory/Forensic Equipment Purchases of Laboratory/Forensic equipment greater than or equal to $50,000 per requisition funding line 10 years
    Leasehold Improvements Purchases of Leasehold Improvements greater than or equal to $50,000 per requisition funding line The shorter of the life of the leasehold improvement or the remaining term of the lease
    Capital Leases Purchases of Capital Leases greater than or equal to $50,000 per requisition funding line > 2 years
    Working Capital Fund N/A N/A
    Vehicles No threshold > 5 years

1.35.6.10.1  (10-01-2010)
IT Equipment

  1. The IRS capitalizes IT equipment, regardless of the price or value, unless it is specifically exempted as expendable equipment. Equipment that is instrumental in the functioning of a larger piece of IT equipment is grouped with larger equipment and capitalized when purchased in conjunction with the larger piece of equipment. The IRS groups and capitalizes COTS software that costs $50,000 and greater with the IT equipment when purchased in conjunction with the IT equipment. COTS software that costs less than $50,000 is expensed.

  2. The IRS does not capitalize expendable equipment, such as monitors, keyboards, mice, hard drives, memory upgrades, braille equipment, and other miscellaneous internal and peripheral devices when these items are purchased separately.

  3. IT equipment generally consists of computer and telecommunications equipment. There are four sub-classifications of computer and telecommunications equipment which include:

    1. Mainframe Computer System - Consist of mainframe systems and related components which have a useful life of seven years.

    2. Server - Consist of servers and related components which have a useful life of seven years.

    3. Laptop and Desktop - Consist of laptop and desktop computers and related components which have a useful life of three years.

    4. Telecommunications Equipment - Consist of voice and data telecommunications equipment and related components which have a useful life of seven years. Examples include equipment such as Calling Party Control equipment, routers, switches, Automated Call Distribution (ACD) equipment, Voice Mail Systems (VMS), Public Branch Exchanges (PBX), Electronic Key Telephone Systems (EKTS), Video Teleconferencing (VTC) equipment, cryptologic equipment, and security equipment.

  4. The IRS fully depreciates IT equipment over its useful life with no residual value.

  5. The following chart summarizes the capitalization and expensing of IT equipment/item:

    EQUIPMENT/ITEM CAPITALIZE EXPENSE
    Mainframe Computer System Mainframe Computer Systems Maintenance
    Processors intended to work with or be placed into mainframe system Extended warranty
    Mainframe components purchased on the same delivery order as the mainframe system  
    Mainframe storage systems
    Mainframe line printers
    Asset tagging
    Shipping, installation, and configuration
    Laptop and Desktop Laptop and desktop computers Maintenance
    Components purchased on the same delivery order as the laptop and/or desktop computers Extended warranty
    Asset tagging
    Shipping, installation, and configuration
    IT Supplies   IT supplies
    Server Servers Maintenance
    Components purchased on the same delivery order as the server Extended warranty
    Storage systems for servers
    Asset tagging
    Shipping, installation, and configuration
    IT Network Toner   Network printer toner
    IT Components and Peripherals   Components of IT equipment purchased separately from computers that are intended to work with or be placed into the computers
    Processors for servers, memory boards, system controller, input output (I/O) assemblies, compact disk drives, hard drives, Secure Dial-In (SDI) cards, video/graphic cards, sound cards, batteries, cables, etc.
    All peripherals
    Shipping, installation, and configuration
    Telecommunications Equipment Voice and data telecommunications equipment Telecom peripherals
    Dedicated servers for telecommunications equipment Automated Call Distribution (ACD) peripherals
    Video Teleconferencing (VTC) equipment Fax machines
    Cryptologic equipment Global Positioning System (GPS) equipment
    Security equipment Relocation and reinstallation of communications equipment
    Wiring for telecommunications systems Removal of wiring
    Asset tagging Shipping, installation, and configuration
    Shipping, installation, and configuration Maintenance
    Extended warranty

1.35.6.10.2  (10-01-2010)
Other Equipment

  1. The IRS capitalizes the cost of other equipment when the requisition funding line is greater than or equal to $50,000.

  2. Capitalized other equipment is depreciated using an estimated useful life of 10 years with no residual value, regardless of it's actual useful life. Other equipment includes, but is not limited to, items such as:

    1. Automated file storage equipment.

    2. Equipment for production, storage, and viewing of microforms.

    3. Document processing equipment such as photocopiers, mail handling equipment, check handling equipment, 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. Other equipment with a requisition funding line less than $50,000 or an estimated useful life of less than two years is expensed.

  4. REFM Territory staff maintains inventory records for other equipment and is responsible for updating inventory records for final asset disposition.

  5. The following chart summarizes the capitalization and expensing of other equipment/item:

    EQUIPMENT/ITEM CAPITALIZE EXPENSE
    Other Equipment Other equipment greater than or equal to $50,000 per requisition funding line and useful life > 2 years All TV sets and sound recording/reproduction equipment, regardless of dollar threshold
    Shipping, installation, and configuration Other equipment < $50,000 per requisition funding line or useful life < 2 years such as barcode scanners
    Data projectors
    Heavy duty stapling machines
    Typewriters
    Walkie talkies
    Maintenance
    Extended warranty
     
     

1.35.6.10.3  (10-01-2010)
Furniture

  1. Beginning Fiscal Year 2011, the IRS will capitalize the purchases of all furniture, including related shipping and installation. Furniture has an estimated useful life of eight years with no residual value.

  2. The following chart summarizes the capitalization and expensing of furniture.

    EQUIPMENT CAPITALIZE EXPENSE
    Furniture All furniture Maintenance
    Shipping and installation

1.35.6.10.4  (10-01-2010)
Internal Use Software

  1. Internal use software consists of COTS software and developed software.

  2. The IRS capitalizes internal use software in accordance with SFFAS No. 10, Accounting for Internal Use Software.

  3. For internally developed software, the IRS determines the useful life for each project and then amortizes the value over the useful life period. The useful life currently ranges between 3 and 17 years. COTS software purchases are amortized over the useful life of the type of IT machine on which the software will run.

  4. For internally developed software, OFR conducts monthly reviews of internal use software costs and uses project life cycle milestones to accumulate costs in compliance with SFFAS No. 10. The IRS Modernization and Information Technology Services Enterprise Governance Committee (MEG) monitors and certifies the project life cycle milestones.

  5. IRS uses all of the following criteria to identify major internally developed software subject to capitalization:

    1. The internal use software must have a useful life of greater than two years.

    2. The project/program that the software is intended to support must have projected costs over $5 million during any one year or estimated cumulative project costs over $50 million during the preliminary design phase, software development phase, and post implementation/operational phase.

    3. The Exhibit 300 is required.

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

  6. Only costs that are associated with the Software Development Phase are to be capitalized.

  7. The following chart summarizes the Software Acquisition Phases of developed software and provides additional guidance regarding whether such costs will be capitalized or expensed:

    PRELIMINARY DESIGN PHASE SOFTWARE DEVELOPMENT PHASE POST IMPLEMENTATION/OPERATIONAL PHASE
    EXPENSE CAPITALIZE EXPENSE
    Activities: Activities: Activities:
    Conceptual formulation of alternatives Design of chosen path, including software interfaces Data conversion (includes cleansing, deleting, and repackaging data)
    Evaluation and testing of alternatives Coding Application maintenance
    Determination of existence of needed technology Installation of hardware
    Final selection of alternatives Testing, including parallel processing phase
     

  8. The IRS capitalizes the cost of internally developed software which includes direct and indirect costs incurred during the software development phase as stated in SFFAS No. 10.

  9. In accordance with SFFAS No. 10, the IRS applies lease accounting concepts to software licenses. The IRS considers perpetual use of software licenses to be similar to ownership of an asset.

  10. The IRS capitalizes any IT or other equipment assets purchased in conjunction with a capitalized internal use software project as IT equipment or other equipment.

  11. The IRS keeps track of capitalizable costs for internal use software in a work-in-process 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 work-in-process account to the deployed systems account and amortization begins. The IRS expenses costs incurred after final acceptance testing has been successfully completed.

  12. In accordance with SFFAS No. 10 the IRS recognizes disposals when software is determined to be obsolete or nonfunctional. The IRS treats terminated projects and/or subprojects as 100 percent obsolete. The IRS adjusts obsolete projects to reduce both the asset and amortization accounts, and records any losses as the result of the disposal.

  13. The following chart summarizes the capitalization and expensing of internal use COTS software:

    SOFTWARE CAPITALIZE EXPENSE
    Software - Mainframes Mainframe software and software licenses greater than or equal to $50,000 per requisition funding line and useful life > 2 years Software maintenance
    Software support
    Operating leases of software licenses
    IT software and software licenses (including software for training) < $50,000 per requisition funding line and/or useful life less than or equal to 2 years, to be used with IT Equipment
    Includes one year renewals and maintenance
    Software - Servers Server software and software licenses greater than or equal to $50,000 per requisition funding line and useful life > 2 years Software maintenance
    Support
    Operating leases of software licenses
    IT software and software licenses (including software for training) < $50,000 per requisition funding line and/or useful life less than or equal to 2 years, to be used with IT Equipment
    Includes one year renewals and maintenance
    Software - Laptop/Desktop Laptop/desktop software and software licenses greater than or equal to $50,000 per requisition funding line and useful life > 2 years Software maintenance
    Support
    Operating leases of software licenses
    IT software and software licenses (including software for training) < $50,000 per requisition funding line and/or useful life less than or equal to 2 years, to be used with IT Equipment
    Includes one year renewals and maintenance
    Software - Telecommunications Telecommunications software and software licenses greater than or equal to $50,000 per requisition funding line and useful life > 2 years Telecommunications software and software licenses (including software for training) < $50,000 per requisition funding line and/or useful life less than or equal to 2 years, to be used with telecommunications equipment

1.35.6.10.5  (10-01-2010)
Laboratory/Forensic/Enforcement Equipment

  1. The IRS capitalizes laboratory/forensic equipment when the requisition funding line is greater than or equal to $50,000.

  2. Laboratory/forensic equipment is depreciated using an estimated useful life of 10 years with no residual value, regardless of it's actual useful life.

  3. Enforcement equipment is expensed. Enforcement equipment includes, but is not limited to, items such as:

    1. Firearms.

    2. Surveillance equipment, night vision equipment, telescopes, binoculars, and other optical equipment.

    3. Body armor.

    4. Two-way radio equipment, such as portable radios, mobile radios, base stations, repeaters, antennas, and antenna coupler systems.

    5. Dialed number recorders and trap and trace devices.

  4. The following chart summarizes the capitalization and expensing of laboratory/forensic/enforcement equipment.

    EQUIPMENT CAPITALIZE EXPENSE
    Laboratory/Forensic Equipment Laboratory and forensic equipment greater than or equal to $50,000 per requisition funding line and useful life > 2 years Laboratory and forensic equipment < $50,000 per requisition funding line or useful life < 2 years
    Shipping, installation, and configuration Shipping, installation, and configuration
    Enforcement Equipment   Enforcement equipment
    Shipping, installation, and configuration

1.35.6.10.6  (10-01-2010)
Leasehold Improvements

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

    1. Alterations to buildings.

    2. Fixtures that become permanently attached to or a part of buildings, such as plumbing, power-plant boilers, fire alarm systems, refrigerating systems, security systems, flooring, or carpeting.

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

  2. Leasehold improvements do not include minor repair or routine maintenance of buildings and land.

  3. The IRS capitalizes costs for leasehold improvements that are $50,000 or greater per requisition funding line and have an estimated useful life of more than two years. The IRS expenses all other leasehold improvements.

  4. Leasehold improvements are amortized over 10 years with no residual value.

  5. The IRS includes shipping, installation, architectural, and engineering services in the capitalized cost of its leasehold improvements.

1.35.6.10.7  (10-01-2010)
Capital Leases

  1. The IRS capitalizes leases in accordance with SFFAS No. 5, Accounting for Liabilities of the Federal Government, and OMB Circular 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 A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, Appendix C, in effect at the time of acquisition.

  3. The IRS depreciates an asset under a capital lease over the useful life of that asset or the term of the lease depending on the criteria stated below. If the asset meets criteria "a" or "b" below, the IRS depreciates the asset over its useful life. If the asset meets criteria "c" or "d" below, the IRS depreciates the asset over the term of the lease. A lease is classified as a capital lease when it exceeds $50,000 per requisition funding line, the contract is longer than two 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 purchase 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 portion of payments representing insurance, maintenance, and taxes.

  4. Prior to entering into the contract, business units must complete the Capital or Operating Lease - Long Term Financing Arrangement Determination Form found in Procurement Policy and Procedures Memorandum No. 7.4, Planning, Acquiring, and Managing Equipment, Software, and Other Capital Assets, to determine if the lease is a capital or operating lease. Business units must forward the completed form, along with the proposed terms and conditions, pricing date, and a copy of the requisition to OFR.

  5. 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.

  6. The IRS funds the NPV of capital leases in the first year, in accordance with OMB Circular A-11.

  7. OFR reviews all transactions related to capital leases monthly and makes adjustments as necessary.

1.35.6.10.8  (10-01-2010)
Working Capital Fund

  1. The IRS does not capitalize property and equipment purchased and held by the Treasury WCF. Although WCF property may be acquired for exclusive use by the IRS, these assets remain accountable under Treasury records. Each quarter, depreciation of WCF property is included in the expenses allocated to the IRS by Treasury based on pro rata share of usage.

1.35.6.10.9  (10-01-2010)
Vehicles

  1. The IRS capitalizes all vehicles purchased for CI. Vehicles have an estimated useful life of five years with no residual value. The IRS enters into the CIMIS database all vehicles purchased for investigative purposes.

  2. The IRS obtains vehicles not used by CI through an operating lease. The IRS does not capitalize these vehicles; however, they are entered in ITAMS for control purposes.

1.35.6.11  (10-01-2010)
Inventory

  1. This section provides guidance for inventory purposes.

1.35.6.11.1  (10-01-2010)
Inventory Systems

  1. ITAMS and CIMIS are inventory systems that are used to record property and equipment.

  2. The IRS uses ITAMS to process all basic accountability actions relating to property and equipment (except for CI investigative property and equipment), including recording and tracking asset acquisitions, transfers, and disposals. REFM records and tracks all equipment used for regular administrative and general office purposes in ITAMS. ITAMS is a stand alone system and is not integrated into IFS. As a consequence, IRS users must enter information regarding acquired assets into both ITAMS and IFS.

  3. The IRS uses CIMIS to record investigative property and equipment location and assignment and to generate reports about the equipment’s use. CI is responsible for recording investigative property and equipment information in CIMIS. CI records all investigative equipment including, but not limited to firearms, optical equipment, sound recorders, sound amplifiers, video cameras, major telephoto lenses, and all sensitive equipment with a value of $900 or more. CI purchases law enforcement type vehicles through General Services Administration (GSA) contracts and records the purchase in CIMIS. CIMIS is a stand alone system which is not integrated into IFS.

1.35.6.11.2  (10-01-2010)
Physical Custody

  1. All IRS campuses and computing centers have controlled access monitored by security guards. Some IRS offices require personnel who are authorized to use property off-site to sign a custody receipt acknowledging responsibility for the equipment. Personnel who do not have a custody receipt may be required to have a property pass for the temporary removal of IRS property for authorized purposes. For personal property that is not in use, IRS policy requires that adequate procedures be implemented to safeguard the property from loss or misuse. The IRS Asset Management Policy IRM 2.14.1, Asset Management, Information Technology (IT) Asset Management states that all inventory personnel should have secured storage space where access is restricted to inventory personnel. The storage area should be sufficient to store assets from incoming shipments, as well as those assets that are in the process of being excessed and shipped out. There should also be sufficient space to secure "in stock" inventories.

1.35.6.11.3  (10-01-2010)
Physical Inventory

  1. IRM 1.14.4, Personal Property Management, Real Estate and Facilities 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. IRS personnel conduct annual inventories to verify the existence of nonexpendable property and equipment and the accuracy of certain information maintained on the asset. Annually, SPIF units take inventory of IT property and equipment that are considered critical, highly pilferable, or have high dollar value. The inventory of assets is performed through a combination of electronic scans, self certification user validations, email verification (from users to a SPIF for items assigned to them that exist and are in their possession), or by a SPIF who has physically verified the existence of an asset.

  2. Additional information concerning physical inventory can be found in IRM 2.14.1, Asset Management, Information Technology (IT) Asset Management and IRM 9.10.1, Criminal Investigation Equipment Control System.

1.35.6.12  (10-01-2010)
Maintenance, Repair, and Rehabilitation

  1. Procedures and guidelines for the maintenance, repair, and rehabilitation of property and equipment can be found in IRM 1.14.4, Personal Property Management, Real Estate and Facilities Management; IRM 2.14.1, Asset Management, Information Technology (IT) Asset Management, and IRM 9.11.3, Investigative Property.

1.35.6.13  (10-01-2010)
Disposals

  1. The IRS uses the disposal process to remove any erroneous records, excess assets that are no longer needed by the IRS, and lost, stolen, or damaged property and equipment.

  2. The IRS records only material dispositions of property and equipment. OFR reviews disposals recorded in ITAMS and CIMIS on a monthly basis to assess materiality and to record adjustments. The adjustments reduce both the asset and accumulated depreciation accounts. Gains or losses are recorded at the end of the fiscal year for assets that have been disposed.

  3. Annually, OFR calculates disposals of leasehold improvements by reviewing a database of leased property and calculating the percentage of leases that have expired within the year. The percentage is applied to the leasehold improvement balance corresponding to the year in which the leases were implemented.

  4. Additional information concerning the actual disposal of IRS property and equipment can be found in IRM 1.14.4, Personal Property Management, Real Estate and Facilities Management; IRM 2.14.1, Asset Management, Information Technology (IT) Asset Management; IRM 9.10.1, Criminal Investigation Equipment Control System; and IRM 9.11.3, Investigative Property.


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