ADA tax credit for stack dryers

[Trab]

Hello everyone,

My distributor emphasized to me the Americans with Disabilities Act (ADA) tax credit I would be able to take for installing stack dryers in my Mat last year. I needed to buy the stacks anyway, but the tax credit was certainly an incentive. I recently gave the ADA tax credit form to my accountant and let him know that I was claiming a $5000.00 tax credit due to the installation of the stacks. The $5000.00 figure came from my distributor.

My accountant is rather conservative (really the kind of accountant I need). He immediately was skeptical of the tax credit, not so much the figure. Anyway he asked me to get proof of the tax credit from my distributor. What I received was a copy of an article from American Coin Op magazine, which in a very positive light talked about the tax credit for both stack dryers and front load machines. I also received a copy of a Wascomat document talking about the tax credit. What has thrown my accountant is in the Wascomat document it states, “We urge you to verify this analysis by consulting with your accountant or tax counsel.”

Well as you can guess, the accountant cannot with any measure of confidence take the position that the tax credit is viable. Below is an excerpt of the letter I received from the accountant:

"We have prepared the 2001 1120S taking the ADA credit based upon Wascomat position that the purchases qualify. However, based upon recent court cases we caution that these purchases might not be qualified for the ADA credit. See: Stephan T. Fan v. Comm, 117TC-No. 3 (7/24/01) and W.A. Ricker v. Comm, TCS 2001-125. We are making an observation not giving an opinion. In order for us to give an opinion, we would need for you to engage us to perform that analysis."

So, I want to know if any of you have or are going to use an ADA tax credit on your tax returns. I have not had a chance to read the court cases yet.

I apologies for being so long winded with the question. I know I am dealing with professionals on this bulletin board. I wanted to give you as much background as possible that pertained to the formation of the question. Thank you.

Trab

[PeterH]

I too gave my accountant all the hype literature for the tax deduction since I installed all new stacks in my 'mat (from 2 stacks to 10). He researched it and said I shouldn't mess with it either.

-ph

[Gary_Crosby]

I have also been looking into this and here is some info I found and gave to my accountant. He is supposed to get back to me soon with his oppinion.

Web site: http://janweb.icdi.wvu.edu/kinder/pages/tax_facts.html



contents: Sorry for the length but I think it's important.

Gary


US Equal Employment Opportunity Commission
FACTS ABOUT DISABILITY-RELATED TAX PROVISIONS
The Internal Revenue Code has three disability related-provisions of particular interest to businesses as well as people with disabilities.
DISABLED ACCESS TAX CREDIT
(Title 26, Internal Revenue Code, Section 44)
This new tax credit is available to "eligible small businesses" in the amount of 50 percent of "eligible access expenditures" that exceed $250 but do not exceed $10, 250 for a taxable year. A business may take the credit each year that it makes an eligible access expenditure.
Eligible small businesses are those businesses with either:
$1 million or less in gross receipts for the preceding tax year; or
30 or fewer full-time employees during the preceding tax year.
Eligible access expenditures are amounts paid or incurred by an eligible small business for the purpose of enabling the business to comply with the applicable requirements of the Americans with Disabilities Act (ADA). These include amounts paid or incurred to:
remove architectural, communication, physical, or transportation barriers that prevent a business from being accessible to, or usable by, individuals with disabilities;
provide qualified readers, taped texts, and other effective methods of making materials accessible to people with visual impairments;
provide qualified interpreters or other effective methods of making orally delivered materials available to individuals with hearing impairments;
acquire or modify equipment or devices for individuals with disabilities; or
provide other similar services, modifications, materials or equipment
Expenditures that are not necessary to accomplish the above purposes are not eligible.
Expenses in connection with new construction are not eligible. "Disability" has the same meaning as it does in the ADA. To be eligible for the tax credit, barrier removals or the provisions of services, modifications, materials or equipment must meet technical standards of the ADA Accessibility Guidelines where applicable. These standards are incorporated in Department of Justice regulations implementing Title III of the ADA (28 CFR Part 36; 56 CFR 35544, July 26, 1991).
Example: Company A purchases equipment to meet its reasonable accommodation obligation under the ADA for $8,000. The amount by which $8,000 exceeds $250 is $7,750. Fifty percent of $7,750 is $3, 875. Company A may take a tax credit in the amount of $3,875 on its next tax return.
Example: Company B removes a physical barrier in accordance with its reasonable accommodation obligation under the ADA. The barrier removal meets the ADA Accessibility Guidelines. The company spends $12,000 on this modification. The amount by which $12,000 exceeds $250 but not $10,250 is on $10,000. Fifty percent of $10,000 is $5,000. Company B is eligible for a $5,000 tax credit on its next tax return.

[Gary_Crosby]

Another good web site I found tonight

http://www.usdoj.gov/crt/ada/taxpack.htm

[Marianne]

I have used the credit four times since it was written. For first purchases of stacks and front loaders in each laundromat. I will use it in the future for other improvements in accessibility.

[Trab]

Thanks all for your responses. I did go to the web sites that Gary spoke of. There is a lot of information yet I am still apprehensive about taking the credit.

But, I think at this point I probably will take the credit.

I'll let you know what happens.

Trab

[petefritz]

I read thru the ADA "stuff" somewhere, sorry, do not remember where. The question posed is are you removing barriers or just adding equipment. If you had NO stack dryers or front load washers, and add one or 2, then you are removing a barrier. If you are replacing existing stacks or front loads, or putting in a new line of them, ie, many, then the barrier part is not met, or only partly met, meaning you could probably take the credit on 1 stack, but not 4 of them.
These distributors selling equipment on tax code are wrong, IMO. And you can take Sec 179 deductions anyway, even though it is not a tax credit, perfectly leagal and straight.
I don't like red flag tax returns, and have stayed away from ADA. I am sure it works for some, but be careful how you apply it.
Best,
Pete

[Charlie]

I spent a lot of time researching this last year. There are two schools of thought to consider. The IRS takes the position that the tax credit is for the purpose of increasing the access for the handicapped. It you already have machines which provide the same level of service, they could take a dim view of adding more and could challenge your credit. If you have machines which are not accessable by the handicapped, then you would have a much stronger argument in the event you are audited.

Of course, the key phrase above is "in the event you are audited". My personal philosophy has always been never to take deductions for items that are clearly prohibited, and to always take the ones that are clearly acceptable, or simply gray.

I added Maytag Neptunes last year. The distributor mounted them on 8" platforms to make them more imposing (not a bad idea). However, that also made them inaccessable by the handicapped. I debated removing the platforms so that I could qualify. However, further research showed that,

Since I am already subject to the AMT (Alternative Minimum tax), I cannot take the ADA tax credit anyway. So before you even worry about this question, are you paying AMT?

I left my Neptunes on the platforms.

[Trab]

I am not paying an AMT. The reason I say this is because this is the first time I have heard of an AMT. Charlie, I would like to know what the AMT is though.

FYI - I did take the credit. I removed machines that were not accessible to wheelchair bound individuals. That is the peg I am hanging my hat on.

Thanks for all of the responses.

Trab

[kern]

I have a friend who is in management in an IRS field office. She tells me that the ADA credit for equipment is really soft. If you are purchasing your very first front load machines then you might want to try the credit. But once you have a few front loaders, you are on very thin ice if you try to claim the credit for adding more front loaders. Also, new stores with front loaders do not qualify at all. The spirit of the law is to encourage removing existing barriers for the handycapped. Installing automatic doors in an existing store that originally had manual doors is a good example. Again, if it is a new store with an automatic door, no credit is allowed. Hope this helps. If you need credits/deductions, look into section 179 (or was it 169). Your accountant should know of these.

[Trab]

Kern,

Your reply has solidified a thought I had. I was thinking that I would take the credit with this years return. However, next year when I update more of my equipment, I will not take the credit based on those purchases. Thanks.

Trab

[kern]

Hi Trab, I think you are correct in your thinking about taking the credit this year and not next. But next year you can still do the section 179 or 169 thing. That gives up to $15,000. Not too bad, better than nothing. And that section isn't tied to ADA. It can be for any capital upgrade you do. Your tax person should be very up on it.