1.35.6  Property and Equipment Accounting

Manual Transmittal

May 05, 2014

Purpose

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

Material Changes

(1) IRM 1.35.6.1, Overview, updated text.

(2) IRM 1.35.6.3, Authorities, added additional authorities.

(3) IRM 1.35.6.4, Related Resources, added additional related resources.

(4) IRM 1.35.6.5(1)(n), Definitions, updated text.

(5) IRM 1.35.6.6, Acronyms, updated acronyms listing.

(6) IRM 1.35.6.7, Responsibilities, added responsibility and updated text.

(7) IRM 1.35.6.7.5, Director, Office of Financial Management Policy, updated text.

(8) IRM 1.35.6.7.9, Chief Information Officer/Chief Technology Officer, added responsibility.

(9) IRM 1.35.6.7.10, Program Manager, Information Technology Service Asset and Configuration Management Office, updated title.

(10) IRM 1.35.6.7.11, MITS IT Specialists/Lead Territory SPIF/Computer Equipment Analysts (CEA), deleted text, position no longer exists. Remaining responsibility sections renumbered after this deletion.

(11) IRM 1.35.6.7.11(1)(a), Chief, Criminal Investigation, updated text.

(12) IRM 1.35.6.7.15(1)(b), Business Units, updated text.

(13) IRM 1.35.6.8.2(2), Procurement Process, updated text.

(14) IRM 1.35.6.8.3, Receipt and Acceptance Process, updated text.

(15) IRM 1.35.6.9(2)(3), Recording Property and Equipment Transactions, updated text.

(16) IRM 1.35.6.10, Property and Equipment Capitalization, updated text.

(17) IRM 1.35.6.10.1(5), Information Technology Equipment, updated text.

(18) IRM 1.35.6.10.2(5), Other Equipment, updated text.

(19) IRM 1.35.6.10.3(1), Furniture, updated text.

(20) IRM 1.35.6.10.4, Internal Use Software.

(21) IRM 1.35.6.10.5(1)(2)(4), Investigative/Enforcement Equipment, updated text.

(22) IRM 1.35.6.10.7, Capital Leases, updated text.

(23) IRM 1.35.6.10.8, Treasury Franchise Fund, updated text.

(24) IRM 1.35.6.10.9, Vehicles, updated text.

(25) IRM 1.35.6.11, Inventory, updated text.

(26) IRM 1.35.6.13, Disposals, updated text.

(27) This revision includes changes throughout this document to update the organizational name of Internal Financial Management to Financial Management, to update the organizational name of Modernization and Information Technology Services to Information Technology, to update Information Technology Asset Management System (ITAMS) to Knowledge, Incident/Problem, Service and Asset Management (KISAM), to update all references of webRTS to IPS, to update all references of Working Capital Fund to Treasury Franchise Fund, to delete all references to Single Point Inventory Function (SPIF) because the position no longer exists, to update laboratory/forensic equipment to investigative equipment, to update IT Asset Management Program Office to IT Service Asset and Configuration Management Office, and other minor editorial changes.

Effect on Other Documents

This supersedes IRM 1.35.6, dated April 29, 2011.

Audience

All Divisions and Functions.

Effective Date

(05-05-2014)

Robin L. Canady
Chief Financial Officer

1.35.6.1  (05-05-2014)
Overview

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

  2. The Chief Financial Officer (CFO), Financial Management (FM) 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  (05-05-2014)
Authorities

  1. The authorities for these policies are:

1.35.6.4  (05-05-2014)
Related Resources

  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.

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

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

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

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

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

  8. IRM 1.14.4, Personal Property Management.

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

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

  11. IRM 9.11.3, Investigative Property.

  12. Procurement Policy and Procedures Memos.

  13. Financial Management Codes Handbook.

1.35.6.5  (05-05-2014)
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 two or more 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 Costs - 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 - Exhibit 300 is submitted by Federal agencies for each major information technology investment as part of the annual budget submission process required by OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget. Exhibit 300 describes the justification, planning, and implementation of an individual capital asset included in the agency IT investment portfolio. Exhibit 300 is comprised of two components - Exhibit 300A provides key high-level investment information to inform budget decisions, including general information and planning for resources, such as staffing and personnel. Exhibit 300B provides information related to tracking management of an investment, such as projects and activities, risks, and operational performance of the investment.

    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 Costs - 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. Knowledge, Incident/Problem, Service and Asset Management (KISAM) - 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 Representative (COR), 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  (05-05-2014)
Acronyms

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

    ACRONYM DESCRIPTION
    ACD Automated Call Distribution
    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
    FM Financial Management
    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
    IFS Integrated Financial System
    IPS Integrated Procurement System
    IT Information Technology
    ITEG Information Technology Enterprise Governance Committee
    KISAM Knowledge, Incident/Problem, Service and Asset Management
    MGC Material Group Code
    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
    TFF Treasury Franchise Fund
    UPS Uninterruptible Power Supplies
    VMS Voice Mail Systems
    VTC Video Teleconferencing

1.35.6.7  (05-05-2014)
Responsibilities

  1. This section provides responsibilities for:

    1. Chief Financial Officer.

    2. Associate Chief Financial Officer for Financial Management.

    3. Director, Beckley Finance Center.

    4. Director, Office of Financial Reports.

    5. Director, Office of Financial Management Policy.

    6. Chief, Agency-Wide Shared Services.

    7. Director, Real Estate and Facilities Management, Agency-Wide Shared Services.

    8. Director, Office of Procurement, Agency-Wide Shared Services.

    9. Chief Information Officer/Chief Technology Officer

    10. Program Manager, Information Technology Service Asset and Configuration Management Office.

    11. Chief, Criminal Investigation.

    12. Criminal Investigation Director, Field Operations.

    13. Criminal Investigation Field Offices.

    14. Criminal Investigation Management Information System Equipment Control System Coordinator.

    15. Business Units.

1.35.6.7.1  (10-01-2010)
Chief Financial Officer

  1. The Chief Financial Officer (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 Chief Financial Officer for Financial Management

  1. The Associate Chief Financial Officer (ACFO) for Financial Management (FM) 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)
Director, Beckley Finance Center

  1. The Director, 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)
Director, Office of Financial Reports

  1. The Director, 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. Calculating and recording depreciation and amortization of property and equipment.

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

1.35.6.7.5  (05-05-2014)
Director, Office of Financial Management Policy

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

    1. Providing guidance and assistance on accounting policy related to property and equipment.

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

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

  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, Agency-Wide Shared Services

  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

  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  (05-05-2014)
Chief Information Officer/Chief Technology Officer

  1. The Chief Information Officer (CIO)/Chief Technology Officer (CTO) 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 requirements.

    3. Ensuring information systems are covered by an approved security plan and are authorized to operate.

    4. Ensuring the organization's core IT competencies are aligned to provide maximum value in support of agency business processes, and ensuring overall strategies are established and engaged to support long-term enterprise-wide information needs and modernization projects.

    5. Ensuring centralized capability for reporting of all security-related activities.

    6. 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.

    7. Serving as the external spokesman for the IRS on technology matters to the Administration, Congress and external oversight bodies.

1.35.6.7.10  (05-05-2014)
Program Manager, Information Technology Service Asset and Configuration Management Office

  1. The Program Manager, Information Technology (IT) Service Asset and Configuration Management Office (SACM) is responsible for:

    1. Providing oversight, coordination, and guidance on the asset management of IT equipment Servicewide within the Knowledge, Incident/Problem, Service and Asset Management (KISAM).

    2. Performing analyses of the KISAM 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 asset owners and IT personnel related to property and equipment and handling property and equipment activities for the purpose of strengthening asset management processes and controls.

1.35.6.7.11  (05-05-2014)
Chief, Criminal Investigation

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

    1. Maintaining and coordinating the inventory, control, and accountability of all investigative and 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.

1.35.6.7.12  (10-01-2010)
Criminal Investigation Director, Field Operations

  1. The Criminal Investigation (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.

1.35.6.7.13  (10-01-2010)
Criminal lnvestigation Field Offices

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

1.35.6.7.14  (10-01-2010)
Criminal Investigation Management Information System Equipment Control System Coordinator

  1. The Criminal Investigation Management Information System (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.

1.35.6.7.15  (05-05-2014)
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 the Material Group Codes (MGCs).

    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 Integrated Procurement System (IPS) 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 Material Group Code (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. IPS 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 IPS interfaces the requisition into the IFS.

  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  (05-05-2014)
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. IPS provides the Office of Procurement personnel with a single automated system that generates procurement documents and interfaces with IFS. Approved requisition information interfaced from IPS 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 IPS, IPS routes it to the correct office and Procurement Division based on the geographic region designator and the Federal Supply Codes (FSC)/MGC. The business unit assigns the MGC. 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 IPS.

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

1.35.6.8.3  (05-05-2014)
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 IPS 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 calendar 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 office(s) that physically receives or accepts the goods and/or services must maintain documentation that supports recording the appropriate accounting entry. An invoice by itself is NOT sufficient documentation to support receipt or acceptance by the business unit. A business unit may use the invoice to assist it in determining the value of goods and/or services received or accepted, in conjunction with other original documentation. Examples of appropriate documentation include packing slips, work orders, delivery notifications, bills of lading, contract deliverables, registration forms, and emails. In the absence of vendor documentation specifying the value of goods and/or services delivered or accepted, the business unit must estimate their value based on agreed to prices, delivered quantities, hours, period of performance, etc.

  4. If the person entering receipt and acceptance in IPS or IFS is not the person who received the goods and/or services, then the business unit personnel recording receipt or acceptance in IPS or IFS must verify in writing with the recipient that they have received and/or accepted the goods and/or services. This documentation (such as an email) must be maintained.

  5. 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 KISAM through the requisition and contract purchase order numbers recorded in CIMIS, KISAM, and IPS.

  6. Additional information on Receipt and Acceptance can be found in IRM 1.35.3, Receipt and Acceptance Guidelines.

1.35.6.9  (05-05-2014)
Recording Property and Equipment Transactions

  1. Correctly recording all actual and estimated fiscal year property and equipment transactions ensures that the IRS presents its 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 an asset and liability on the balance sheet.

  2. The Office of Financial Reports (OFR) located within the Chief Financial Officer, FM Unit, reviews property and equipment balances and transactions $50,000 or 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. Monthly, OFR reviews disposals from KISAM and CIMIS. 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 year-end.

  3. OFR capitalizes property and equipment that has an estimated useful life of two or more years. The IRS depreciates its property and equipment using the straight-line method. Except for leases that meet the 75% useful life and/or 90% of Net Present Value (NPV) criteria (see IRM 1.35.6.10.7, Capital Leases), the IRS records a half-year of depreciation in the first year and in the final year for all property and equipment. For leases that meet the 75% useful life and/or 90% of NPV criteria, the IRS depreciates them over the life of the lease, with no use of half-year convention.

  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  (05-05-2014)
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. Major Systems.

    2. IT Equipment.

    3. Furniture.

    4. Other Equipment.

    5. Internally Developed Software/Internal Use Software.

    6. Investigative Equipment.

    7. Leasehold Improvements.

    8. Assets under Capital Lease.

    9. Treasury Franchise Fund (TFF).

    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 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 the IRS.

  4. The useful life of an asset is the normal operating life in terms of utility to the owner. 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
    Mainframe/Server Components purchased separately Purchases of Mainframe/Server Components when the dollar amount of the award line is $50,000 or greater 7 years
    Furniture No threshold 8 years
    Other Equipment Purchases of Other Equipment when the dollar amount of the award line is $50,000 or greater 10 years
    Internal Use Software Projects with an estimated cost of $10 million or greater per year or $50 million over the life cycle 2 or more years
    Purchases of Internal Use Software when the dollar amount of the award line is $50,000 or greater 2 or more years
    Investigative Equipment Purchases of investigative equipment when the dollar amount of the award line is $50,000 or greater 10 years
    Leasehold Improvements Purchases of Leasehold Improvements when the dollar amount of the award line is $50,000 or greater 10 years
    Assets under Capital Lease Purchases of Capital Leases when the dollar amount of the award line is $50,000 or greater 2 or more years
    Treasury Franchise Fund N/A N/A
    Vehicles No threshold 5 years

1.35.6.10.1  (05-05-2014)
Information Technology 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 or greater with the IT equipment with which the software has been purchased or intended for use. 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 - Consists of mainframe systems and related components which have a useful life of seven years.

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

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

    4. Telecommunications Equipment - Consists 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 components purchased separately from the mainframe when the dollar amount of the award line is less than $50,000
    Mainframe storage systems
    Mainframe components purchased separately from the mainframe when the dollar amount of the award line is $50,000 or greater
    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 Laptop and Desktop components purchased separately from the laptop and/or desktop delivery order
    Shipping, installation, and configuration
     
    IT Supplies   IT supplies  
    Server Servers Maintenance  
    Components purchased on the same delivery order as the server Extended warranty  
    Components purchased separately from the servers when the dollar amount of the award line is $50,000 or greater Components purchased separately from the servers when the dollar amount of the award line is less than $50,000  
    Storage systems for servers    
    Asset tagging    
    Shipping, installation, and configuration    
    Network printer toner   Network printer toner  
    IT Peripherals   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 Relocation and reinstallation of communications equipment  
    Security equipment Removal of wiring  
    Wiring for telecommunications systems Shipping, installation, and configuration  
    Asset tagging Maintenance  
    Shipping, installation, and configuration Extended warranty  

1.35.6.10.2  (05-05-2014)
Other Equipment

  1. The IRS capitalizes the cost of other equipment when the award line is $50,000 or greater.

  2. Capitalized other equipment is depreciated using an estimated useful life of 10 years with no residual value, regardless of its 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 an award 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 when the dollar amount of the award line is $50,000 or greater and useful life 2 or more years All TV sets and sound recording/reproduction equipment, regardless of dollar threshold
    Shipping, installation, and configuration Other equipment when the dollar amount of the award line is less than $50,000 or useful life less than 2 years
    Barcode scanners
    Data projectors
    Heavy duty stapling machines
    Typewriters
    Walkie talkies
    Global Positioning System (GPS) equipment
    Maintenance
    Extended warranty
     
     

1.35.6.10.3  (05-05-2014)
Furniture

  1. The IRS capitalizes 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  (05-05-2014)
Internal Use Software

  1. Internal use software consists of COTS software and internally 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 is two or more 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, Accounting for Internal Use Software. The IRS Information Technology Enterprise Governance Committee (ITEG) 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 two or more years.

    2. 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 (Prior Year (PY), Current Year (CY), Budget Year (BY), BY+1, BY+2).

    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, Accounting for Internal Use Software.

  9. In accordance with SFFAS No. 10, Accounting for Internal Use Software, 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, Accounting for Internal Use Software, 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 when the dollar amount of the award line is $50,000 or greater and useful life 2 or more years Software maintenance
    Software support
    Operating leases of software licenses
    IT software and software licenses (including software for training) when the dollar amount of the award line is less than $50,000 and/or useful life less than 2 years, to be used with IT Equipment
    Includes one year renewals and maintenance
    Software - Servers Server software and software licenses when the dollar amount of the award line is $50,000 or greater and useful life 2 or more years Software maintenance
    Support
    Operating leases of software licenses
    IT software and software licenses (including software for training) when the dollar amount of the award line is less than $50,000 and/or useful life less than 2 years, to be used with IT Equipment
    Includes one year renewals and maintenance
    Software - Laptop/Desktop Laptop/desktop software and software licenses when the dollar amount of the award line is $50,000 or greater and useful life 2 or more years Software maintenance
    Support
    Operating leases of software licenses
    IT software and software licenses (including software for training) when the dollar amount of the award line is less than $50,000 and/or useful life less than 2 years, to be used with IT Equipment
    Includes one year renewals and maintenance
    Software - Telecommunications Telecommunications software and software licenses when the dollar amount of the award line is $50,000 or greater and useful life 2 or more years Telecommunications software and software licenses (including software for training) when the dollar amount of the award line is less than $50,000 and/or useful life less than 2 years, to be used with telecommunications equipment

1.35.6.10.5  (05-05-2014)
Investigative/Enforcement Equipment

  1. The IRS capitalizes investigative equipment when the award line is $50,000 or greater.

  2. Investigative equipment is depreciated using an estimated useful life of 10 years with no residual value, regardless of its 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 investigative/enforcement equipment.

    EQUIPMENT CAPITALIZE EXPENSE
    Investigative Equipment Investigative equipment and forensic equipment when the dollar amount of the award line is $50,000 or greater and useful life 2 or more years Investigative equipment and forensic equipment when the dollar amount of the award line is less than $50,000 or useful life less than 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 award line and have an estimated useful life of two or more 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  (05-05-2014)
Capital Leases

  1. The IRS capitalizes leases in accordance with 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 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, Appendix C: Discount Rates for Cost-Effectiveness, Lease-Purchase, and Related Analyses, 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 award line, 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 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 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.

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

1.35.6.10.8  (05-05-2014)
Treasury Franchise Fund

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

1.35.6.10.9  (05-05-2014)
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. In Fiscal Year 2013, the IRS and GSA entered into a Memorandum of Understanding (MOU) to transfer the majority of IRS-CI vehicles to GSA and the IRS will subsequently lease them back. The IRS has analyzed the MOU and determined the lease to be a capital lease. Vehicles will be recorded as an asset and liability at the Net Present Value of the asset. Depreciation will be calculated using straight-line method over a five-year period. The leased vehicles will be tracked in CIMIS.

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

1.35.6.11  (10-01-2010)
Inventory

  1. This section provides guidance for inventory purposes.

1.35.6.11.1  (05-05-2014)
Inventory Systems

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

  2. The IRS uses KISAM 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 KISAM. This includes non-IT assets with an acquisition cost of $5,000 or greater, all non-IT high-risk designated property with a cost of $1,000 or greater, and all leased non-IT personal property. KISAM is a stand alone system and is not integrated into IFS. As a consequence, IRS users must enter information regarding acquired assets into both KISAM 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, accessories, and supplies valued at $900 or greater; all sensitive equipment to include all firearms, pocket commissions, enforcement badges (belt and wallet), body armor; and all property which is susceptible to being converted to personal use. At a minimum, this will include digital cameras, video recorders, and GPS devices. CI purchases law enforcement type vehicles through 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.

  2. The IRS Asset Management Policy IRM 2.14.1, 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  (05-05-2014)
Physical Inventory

  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. IRS personnel who are responsible for conducting annual inventories of property and equipment are tasked with verifying the existence of nonexpendable property and equipment maintained in KISAM. This includes verifying the accuracy of specific data fields in KISAM that validate the existence, ownership, and location of the equipment. The annual inventory certification process requires that high-dollar value, system critical, or highly pilferable assets be verified and certified each year.

  2. Additional information concerning inventory policy can be found in IRM 1.14.4, Personal Property Management.

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; IRM 2.14.1, Information Technology (IT) Asset Management, and IRM 9.11.3, Investigative Property.

1.35.6.13  (05-05-2014)
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 dispositions of property and equipment at year-end. OFR reviews disposals recorded in KISAM and CIMIS on a monthly basis. 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. Quarterly, 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. Leasehold improvements 15 years and over are considered disposed and removed from the account balance.

  4. At year-end, IRS reviews assets in KISAM that have a received date greater than 10 years from the current fiscal year. IRS adjusts the IFS value to the balance in KISAM for those assets.

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


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